September 2, 2009
-
News: Modest Decline in CC Defaults
Is the recession nearing its end? Analyst aren't saying for sure, but we are beginning to see some signs of recovery. This week the Fitch Ratings released its monthly report on the nation’s credit quality. Fitch Ratings is a leading global organization providing ratings and research on the banking and credit card industry. According to this month's report, the nation’s credit card defaults in July were 10.55% down from 10.79% in June. Defaults are those debts that the company does not expect to recover and are loses that are written off the books. Also showing a slight decline were the delinquencies. Americans have done a slightly better job at paying their monthly credit card payments as delinquencies of 60 days or more were 4.26% down from the previous month at 4.31%. Delinquencies are significant because they are a key indicator of future defaults.
Despite the fact that both defaults and delinquencies have had a modest decline, they remain higher than a year ago; defaults are 63% above last year and delinquencies are 40% up. Earlier forecasts that credit card defaults are expected to reach 12% to 14%, experts have reduced that forecast to 11% to 12%. Also playing a significant role in the number of defaults is the unemployment rate. Unemployment has reached record breaking highs. The current unemployment rate is near 9.4% and is expected to peak at over 10%. The Fitch Rating also indicated that historically the nation realizes an increase in credit card defaults during the fourth quarter, however, with delinquencies stabilizing over the past several months it is likely we will not see a significant increase this year.
Moody's Credit Card Index also reported a decline in defaults for last month which gives additional support to the nearing of the end of the recession. Americans have good reason to be optimist. The news is encouraging, however, consumers should continue to be cautious and prudent in making financial decisions.