Creditors and economists breathed a sigh of relief as new data emerged revealing that the number of expected credit card defaults did not materialize.
Despite the gloom surrounding the nation's economy, some analysts are optimistic that the latest data can indicate an economic turnaround for the U.S. Some credit card issuers and banks have posted better-than-expected default rates in recent months. Several financial institutions have also seen defaults fall for the first time since 2008.
Despite the rising unemployment and housing woes, the economy is showing signs of recovery, although the Obama administration is being cautious in claiming progress. Experts say that Americans are saving more and spending less. The dramatic shift in consumer mentality has baffled many economists and is forcing many banks and credit issuers to adapt new policies.
Already, creditors are issuing fewer cards and are becoming stingy in giving out credit for new applicants. Banks have also sent out fewer mail solicitations. Credit card issuers this year have sent 2 billion solicitations to American mailboxes, down from 6 billion last year.
Some analysts, however, say that the new developments may pass and the perceived stronger economic performance can be seasonal.
Other card companies, however, are showing worse numbers. The Bank of America has reported that its default rate this June has risen to 13.81 percent, up from 12.50 percent in May. Analysts say that the high default rate is affected by the housing crisis and rising unemployment in California and Florida, two of the worst hit states in the U.S.
Across the board, delinquencies also fell significantly. Most banks have seen delinquency reductions averaging 0.2 percent. A cardholder is considered delinquent if their payments are more than 30 days late. Most economists see delinquencies as precursors to defaults and industry experts track delinquencies closely.
Analysts also add that the nation's unemployment rate is closely tracked by credit card defaults. Economists have cited the close relationship between the number of unemployed Americans and the number of defaulted debts and loans. In June, the nation's unemployment rate rose to 9.5 percent, the highest in 26 years. The numbers are expected breach the 10-percent mark by the end of this year or early next year.
Credit card defaults are also expected to skyrocket to between 12 and 14 percent before the end of the year. With these figures, banks and credit card companies may lose $100 billion, experts say. Card issuers can expect to see profits by 2011, analysts add.