Credit Card Chargeoffs Rise as Delinquencies Fall

The worsening economic conditions is resulting in more losses for credit card companies and banks as consumers are struggling to pay their dues in time. A recent report by one of the nation's most reliable financial analysis services showed disheartening figures as well as unexpected developments.

Standard and Poor's (S&P) recently released the latest data on the health of the credit card industry. In the report, S&P analysts noted that chargeoffs rose in recent months as more people found it hard to find jobs. Analysts track chargeoffs because they are closely related to the nation's unemployment rate. Chargeoffs are credit cardholders' debts that companies do not expect to be paid. The link between chargeoffs and unemployment is very consistent, according to experts.

Michael Wray, one of S&P's credit analysts, says that chargeoffs could grow more in 12 to 18 months and range from 10.5 and 12.5 percent. The estimate is based on unemployment rate between 10.6 and 12.7 percent. In June, the unemployment rate was 9.5 percent. Last month, the unemployment rate was slightly lower at 9.4 percent. Experts warn that the figure is expected to balloon to 10 percent by the end of this year or the in early 2010.

Analysts also say that the loan losses in the industry could top $70 billion this year as credit card losses reach 10 percent. The poor economy coupled with high unemployment rates has severely hurt the credit card industry. A new law set to take effect in February next year will also impose tougher regulations for credit card issuers, adding to the fears of more losses.

Despite the gloomy economic forecast, credit card delinquencies fell slightly last month. Delinquencies are monthly payments more than 30 days late. Private-label cards also showed a significant decrease in chargeoffs from 7.1 percent in April to 6.9 percent in May.

The same S&P report revealed that total delinquencies in the US fell to 5.7 percent in April from 6.1 percent the month before. Experts say that the decline was expected because consumers were making use of tax refunds to pay their debts.

Defaults also increased to 12.2 percent in May, up from 11.7 percent a month before.

Information supplied by various banks and credit card companies showed that defaults rose across the board in May, according to an S&P analysis. The U.S. credit quality index also registered an increase to 10 percent from 9.4 percent in April.

Jennifer Brown

Jennifer Brown, an external business consultant working with a Fortune 500 company, has years of experience to her credit. Despite having a busy schedule through the day, she takes time out to write articles dealing with credit cards, payday loans and other financial aspects. She has completed her Bachelor degree in Financial Services from Columbia University and has been actively involved in various activities for the betterment of society.