The credit industry's hopes were raised this month as Moody's released the most recent set of figures about charge-off rates and delinquency rates. American cardholders showed significant improvement regarding delayed payments, with the latest figures the first drops in charge-offs and delinquencies since September of last year.
According to the date collected by Moody's, the charge-off rates for credit cards in July was 10.52. The figure is significantly lower than the record-high 10.76 reported in June. The delinquency rate also dropped to 5.73 in July from 5.81 the month before. Analysts say that the latest decline in delinquent payments has been the fourth consecutive one drop in recent months, fueling hopes of the credit industry's recovery.
The latest developments come at the heels of recent data suggesting an improving job market. Recent surveys have suggested that the unemployment rate is showing signs of improvement. Experts say that this is importance since charge-off rates are strongly linked to jobless figures. With many economists predicting more Americans to lose jobs in the next few months, there are fears that the charge-off rate can climb before the end of the year. If the jobless rate climbs, then the credit industry might suffer another crucial blow.
Nessa Feddis, American Bankers Association senior counsel and vice president, says that it the latest improvements are raising optimism, the figures are still relatively high. Experts like Feddis believe that the recent developments may not be strong indicators of a turnaround or an outright economic recovery.
Feddis also says that most banks and creditors are still trying to recover from the mortgage industry meltdown and are now faced with impending losses due to the charge-offs and delinquencies. She expects card companies to lose money in the coming months and possibly even into 2010.
Despite the declining charge-off and delinquency rates, Moody's stuck to its prediction of the charge-off rates peaking at 12 or 13 percent by the middle of next year. The financial agency based this prediction on the expected high unemployment rate of 10 or 10.5 percent next year.
Researchers at Moody's say that the improvements could be seasonal. Charge-offs and delinquencies usually taper off during April when most cardholders receive tax refunds and use these to pay off their debt. With millions of students expected to return to school, however, analysts are expecting increased spending and higher delinquency rates. If cardholders fail to settle their debts in time, then card issuers will have to write them off as losses, leading to higher charge-off rates.