Research and Statistics

U.S. credit card defaults reach 20-year high


Credit card defaults — the failure to make a payment on a debt by the due date — sprouted in February to a 20-year-high.

The content on this page is accurate as of the posting date; however, some of our partner offers may have expired. Please review our list of best credit cards, or use our CardMatch™ tool to find cards matched to your needs.

Credit card defaults — the failure to make a payment on a debt by the due date — sprouted in February to a 20-year high. The increase is another sign that an increasing amount of U.S. citizens are neglecting their credit card debt amid an expanding recession.

According to a report by Reuters, American Express and Citi were the issuers hit the most by the missed payments. AmEx said its net charge-off rate —  debts that companies deem as uncollectable — grew to 8.7 percent in February from 8.3 percent in January. And Citi — a prominent issuer of MasterCards — cited a 2.38 increase in defaults, skyrocketing from 6.95 in January to 9.33 in February.

The upsurge was larger than forecasted for the two issuers. Moshe Orenbuch, an analyst at Credit Suisse, said American Express credit card losses were 10 basis points larger than forecast (there are 100 basis points in 1 percentage point). One factor playing into the increase might be the U.S. unemployment rate, which hit 8.1 percent in March, and has left more than 13 million Americans jobless.

However, two issuers — Chase and Capital One — reported credit card losses below analysts’ expectations.

Chase, a prominent issuer of Visa cards, reported its charge-off rate rose 0.41 percent from 5.94 percent in January to 6.35 percent in February. In addition, Capital One’s default rate increased just 0.24 percent to 8.06 percent in February from 7.82 percent in January.

Scott Valentin, an analyst with Friedman, Billings, Ramsey & Co. Inc., told Dow Jones Newswire the two issuers’ numbers were “better than anticipated,” but warned that credit costs for consumers will continue to rise due to growing unemployment, which could impact profits for Capital One and others.

Overall, analysts say credit card chargeoffs could reach 10 percent this year, which is up from about 7 percent at the end of 2008. If so, losses could total $70 billion to $75 billion in 2009.

John Williams, an analyst at Macquarie Research, predicts the U.S. credit card industry will witness further problems over the next 12 to 18 months. He said the stabilization that Capital One experienced has to spread to other lenders before widespread improvements are seen.

Fewer Americans applying for credit cards might help settle the market, too. Bank analysts at Meredith Whitney estimate that Americans’ credit card lines will be slashed by 50 percent by the end of 2010, which will lead to fewer Americans being offered cards.

See related: Credit card charge-offs hit record high in January, Credit card late payments hit record high

Editorial Disclaimer

The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

What’s up next?

In Research and Statistics

Study portrays credit card binding arbitration as fair

Northwestern University School of Law’s Searle Civil Justice Institute’s study says arbitration — at least as practiced by the one group that was studied — is fair to credit card users.

See more stories
Credit Card Rate Report Updated: November 25th, 2020
Cash Back

Questions or comments?

Contact us

Editorial corrections policies

Learn more