August 24, 2009
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News: Credit Card Defaults Encouraging
A Moody report showed that the nation's credit card defaults lowered for the first time in nearly a year. The July defaults were 10.52% down from June's record breaking high of 10.52%. Credit card delinquencies of 30 days or more past due also dropped in July to 5.73% from 5.91 in June. July's delinquency rate is the lowest our nation has seen this year and the fourth consecutive month in decline. Caution should be taken in understanding that although the numbers have dropped off, credit card defaults and delinquencies still remain very high and high unemployment numbers continue to be a serious problem. Unemployment drives defaults and credit issues. Analysts believe it will still be some time before the nation sees the end of the recession.
While the news is encouraging, credit card companies continue to be concerned about high credit card defaults. The additional massive losses from the mortgage segment and continued rise in unemployment, lenders will continue to find it necessary to protect themselves against high risk customers. Americans can expect to feel the credit crunch as a result. At one time, many Americans were able to depend on home equity lines to help cover card debt in case of job loss. However, the housing crisis has caused many to loss any equity they once had in their homes. Additionally, many Americans have also lost a significant amount of their retirement accounts as they watched the stock market crumble.
During the past year, lenders have acted aggressively to reduce credit risks and lower loses due to credit card and mortgage defaults. This move served to weed out the high risk customers and have left the more creditworthy cardholder. Their action most likely is the greatest contributing factor in explaining why defaults have lowered. Some experts feel the decrease in defaults and delinquencies could be a seasonal change and that Americans can expect to see another increase as unemployment continues to climb.