Fewer people are defaulting on their credit cards, a positive sign that fewer cardholders are getting into deeper debt and their ability to pay bills is on the mend, according to Fitch Ratings’ report for July 2009.
Credit card defaults in July declined after five consecutive months of setting new highs.
Fitch’s index that measures charge-offs, or credit card-based loans that banks or companies do not expect to be repaid, fell to 10.55 percent in July from 10.79 percent in June.
Fitch’s delinquency index, an indicator of future defaults, fell to 4.26 percent from 4.31 percent.
Fitch’s report is similar to that of Moody’s Credit Card Index, which found that the default rate had fallen from an all-time high of 10.76 percent in June to 10.52 percent in July. Moody’s reported that this was the first decline in the charge-off rate since last September.
The largest U.S. credit card lenders also have reported declining defaults, further fueling optimism that the deep recession is waning. JPMorgan Chase & Co., recently reported that defaults dropped in July for a second straight month. Other large lenders also reported declines.
JPMorgan’s default rate fell to 7.92 percent from 8.04 percent in June, the New York-based bank said in a regulatory filing. Citigroup Inc., American Express Co. and Discover Financial Services also reported fewer bad loans.
Credit card industry analysts see these modest declines as a sign that charge-offs are beginning to moderate. However, credit card defaults are 63 percent above July 2008, and chronic late payments, or delinquencies are up 40 percent.
Fitch agrees, saying that charge-offs will not go through their traditional fourth-quarter rise this year based on the stabilizing defaults of the last few months.
Nonetheless, credit card charge-offs tend to parallel the unemployment rate, which is expected to peak at 10 percent, up from the 9.4 percent from July. Accordingly, some analysts say defaults could go higher than 11 percent on average.
