June has seen lesser credit card defaults as per the data collected on defaults and credit card payment. This comes as an indication that people are finally getting wiser in their use with credit cards.
Among the six most popular credit card issuers, five of them report a decrease in their charge-off rates. The exception was seen in case of Citibank which is the second largest credit card issuer and boasts about roughly 90 million cards in circulation. In Citibank alone, the charge-off increased from 11.16 percent in May to 11.46 percent this June. Citibank also reported an increase in Delinquencies which rose from 8.42 percent in May to 8.58 in June. It now stands as the bank which has the highest delinquency rate among the six banks that were considered.
Chase, which has 120 million cards in circulation and is the topmost issuer of credit cards, reported of drop in the charge-offs. While the charge-offs dropped by more than 1 percent, the delinquencies too saw a fall from 4.38 percent in May to 4.3 percent in June.
Jamie Dimon, JPMorgan Chase CEO said that the charge-off rates would improve though it would take time owing to the sluggish economy.
The other banks that reported a drop in the charge-off rates include Discover, Bank of America and Capital One. Capital One reported a drop in charge-off rate from 9.5 percent in May to 9.3 percent in June which is the smallest improvement reported from among the five banks.
Many reasons have been attributed for the improving credit card defaults. One of the main reasons was the unpaid balances which were written off by banks last year. This amounts to nearly $35 billion and has greatly influenced the charge-off rates.
Another reason is the stringent lending standards being adopted by the banks through rules brought in since 2007. The banks are now analyzing their customers and avoiding lending to riskier customers narrowing the chances of defaults in payments. Through their lending standards, the cards are being made available only to those customers whom they can trust when it comes to payments on time.
The new slashed credit limits due to regulations brought in on interest rates increases is considered as yet another factors that has influenced the credit card defaults. Since the customers now have lesser money to borrow, there are lesser chances of default in payment.