Credit Card Issuers Report Decline in Defaults and Deliquencies

September 19, 2011, Written By Lynn Oldshue

Default rates and delinquencies dropped once again in August for most of the major credit card issuers. Chase, Discover, American Express, and Bank of America all reported drops in both important figures in their
August regulatory filings.

Credit cardholders and issuers have both made changes that brought an excessive system of credit card borrowing and lending back under control. Many of the borrowers who could not pay off their debt have already defaulted, while others have diligently paid down their balances and used other forms of payment to avoid the high interest rate penalties. Credit card issuers closed risky accounts, cut credit limits on millions of accounts, and tightened lending standards to cut their risk of defaults and late payments.

Another decline in charge-offs and late payments shows that issuers and borrowers are still conservative with lending and borrowing, even with interest rates at historic lows. This is creating a healthier lending environment, but borrowing, lending, and spending provide the energy that runs our economy. The economy is stalled without them.

Charge-offs and late payments peaked in the summer of 2010 and have dropped steadily since then.

Late payments and default payments are declining at a time when credit card balances are dropping. According to the latest Federal Reserve Consumer Credit Report, revolving credit, which is made up primarily of credit card debt, dropped $3.4 billion to $792.5 billion in July. This represents an annual decline of 5.2%. This follows increases in both May (4.6%) and June (3.9%). Revolving debt decreased for 27 consecutive months between September 2008 and November 2010.

Here are the default and delinquency rates for the major issuers:

The charge-off rate in August was 3.6 percent of balances on an annualized basis, down from 3.83 percent in July. Late payments were 2.49 percent in August, down from 2.6 percent in July.

Bank of America
The charge-off rate in August dropped to 6.79 percent of annualized balances, down from 7.43 percent in July. Late payments fell to 3.96 percent of balances in August, from 4.05 percent the prior month.

Chase charged off 4.67 percent of credit card balances on an
annualized basis last month, down from 4.78 percent in July. Late
payments were 2.48 percent of balances in August, down from
2.52 percent in July.

The charge-off rate rose to 6.92 percent of balances on an annualized basis in August, up from 6.64 percent in July. Late payments dropped to 3.35 percent in August, from 3.39 percent in July.

Capital One
The annualized charge-off rate rose to 4.10 percent in August, up from 3.77 percent in July. Late payments rose for the third straight month to 3.43 percent in August, up from up from 3.37 percent in July.

American Express
The annualized charge-off rate fell to 2.7% in August from 2.8% in July. Late payments were 1.4% in August, down from 1.5% in July.

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The information contained within this article was accurate as of September 19, 2011. For up-to-date
information on any of the terms, cards or offers mentioned above, visit the issuer's website.

About Lynn Oldshue

Lynn Oldshue has written personal finance stories for for twelve years. She majored in public relations at Mississippi State University.
View all posts by Lynn Oldshue