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More consumers making timely credit card payments

June 28, 2011

| Money Rates Columnist

Our efforts to whittle down our credit card debt may be bearing more fruit as the delinquency rate for credit card debt dropped to just under 4 percent in the first quarter of 2011, down from the 6.61 percent delinquency rate when those rates were at their peak two years ago.

In their filings with the Fed, the banks also reported that their rates of net charge-offs, which are the accounts that bank write off as uncollectible, have also declined. Delinquent accounts are those that are more than 30 days past due, but banks typically don't write off credit card balances until after payments are more than 180 days late.

Loans in default decline

The overall charge-off rate in the U.S. dropped to 6.96 percent in the first quarter, down from the 10.97 percent peak it recorded in the second quarter of 2010. The only bank to see an increase in its charge-off rate was JP Morgan Chase, whose charge-offs climbed to 5.67 percent in May from 5.6 percent in April. That May rate was still significantly lower than the 10.91 percent charge-off rate Chase, the nation's largest credit card issuer, recorded in January 2010.

The delinquency rate reported by the Federal Reserve was widely seen as good news for both consumers and the economy. According to Business Week, the shrinking credit card delinquency rate is a sign that card owners are enjoying improved financial conditions and that our economy in general is stabilizing.

Hard to get credit card application approved

Another factor is that banks have already written off the balances of customers who are most likely to default on their credit card payments. According to the Associated Press, the Fed data showed that late payments on credit cards have now dropped to the same levels they were before the recession started. However, in general, credit card companies are denying any credit card application from anyone without an excellent credit rating, and they are making it tougher for people with a poor history of making timely payments from getting credit cards with large borrowing limits.

Results for different banks

Credit card companies are all seeing steep declines in the kind of losses they were experiencing during the recession. For example:

  • Discover Financial Services wrote off $68.59 million as uncollectible in May, down from the $72.36 million from the previous month. Discover's charge-off rate is nearly half what it was in February 2010. Its late-payment rate dropped below 3 percent, the lowest it's been in four years.
  • American Express reported late payments on only 1.6 percent of it balances, the best in the industry. Amex's charge-off rate was also the industry's lowest at 3.2 percent.
  • Chase, despite an increase in its charge-offs, saw late payments drop to 2.66 percent, the best its recorded in five years.
  • The highest charge-off rate in the industry--8.03 percent--was recorded by Bank of America, but even that rate is the best its recorded in four years and down significantly from the 14.53 percent in recorded in August 2009. The next highest charge-off rate was recorded by Citibank at 7.81 percent.

The low late-payment rate was a sign that charge-off rates are likely to improve in future quarterly credit card reports to the Fed.

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