Research and Statistics

Rise in delinquencies signals prolonged credit card woes


Though charge-offs decreased during September, the credit card industry braces for an eventual increase in noncollectable debt as delinquencies rise.

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Despite a decrease in the number of credit card charge-offs, experts predict more credit card woes ahead as the credit card delinquency and unemployment rates continue to rise, according to Fitch Ratings, a credit rating agency.

Last month, charge-offs — the amount of credit card debt deemed uncollectable by banks — dropped to 10.75 percent, down by about half a percentage point from last month’s record high. Yet the number of delinquent accounts on which a minimum payment was more than 60 days late rose to 4.22 percent. The delinquency rate is 33 percent higher this year compared to the same time last year. Early stage delinquencies, where payment is at least 30 days overdue, also increased.

These rises in delinquencies are a sign that more consumers may not have the means to pay off their debts, which could trigger another rise in charge-offs.

“While somewhat seasonal, the rise in delinquencies provides further evidence that charge-offs will remain elevated in the coming months,” said Cynthia Ullrich, Fitch senior director, in a press release.

In September, unemployment reached a seasonally adjusted 9.8 percent, according to the U.S. Bureau of Labor Statistics.  These rates are expected to climb throughout the year before peaking at about 10.3 percent in mid-2010.

“U.S. consumer credit quality measures remain pressured and charge-offs will stay high until we see some improvement in employment conditions and in delinquency trends,” said Michael Dean, Fitch managing director, in a press release.

See related:APRs rise, even after Fed leaves rates unchanged, Bankruptcy filings on track to hit 1.4 million in 2009, Credit card balances fall by nearly $10 billion in August

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