Credit card charge-offs hit record high in January

Report says rate likely to continue to climb as economy suffers

Banks increasingly abandoned their attempts to collect money from delinquent credit cardholders in January, according to research and risk analysis firm Moody's.

Credit card charge-offs rose to a record high of 7.74 percent in January from 7.73 percent in December, with Moody's key credit card index  predicting that the charge-off rate index could reach double digits by the end of 2009 if the employment picture worsens. Charge-offs occur when lenders conclude they are unable to collect a debt and  remove it from their financial accounts. Last week, card issuer J.P. Morgan Chase warned that its net charge-offs could reach 7 percent for the first quarter as areas of the United States with the sharpest declines in housing prices and highest unemployment are hardest hit.

Meanwhile, Moody's said the rate of delinquency (credit card accounts that are more than 30 days past due) advanced to 5.94 percent in January, the highest level since the rate's historical peak of 6.31 percent in January 1992. Moody's said that record is likely to be broken in the coming months. Since delinquent accounts can eventually be charged off, the delinquency rate's movement is a solid indicator of future charge-off trends.

At the same time, the payment rate slid to 16.39 percent, down around 2.7 percentage points from the year earlier. The payment rate should continue to fall as cardholders who generally pay off their entire monthly balance spend less amid the recession and cardholders who only make minimum payments face increasing pressure to continue to do so, Moody's said.

See related: Fitch: Credit card late payments hit record high, charge-offs spike,  

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Updated: 01-22-2019