A bit of good news mixed with bad came with the latest Fitch Ratings report released last Thursday. The bad news first: Credit card defaults continued to rise to record levels this April as consumers try to survive the continuing recession an deal with a worsening employment crisis. The good news is that delinquencies have actually dropped this April, the first month it has done so since five months ago.
Fitch measures loans that credit companies expect no payments forthcoming through their prime credit card chargeoff index. This April, it went up by 77 basis points resulting in a chargeoff index of 9.66%, another record for the third consecutive time. The value is up by 51% compared to values from last year.
The credit industry does have a bit of positive news, however. The delinquency index of Fitch ratings declined by 7 basis points, putting it at 4.37%. The delinquency index measure receivables for credit card companies that are already 60 days over the overdue date. It is considered as a good indicator for credit companies' possible future credit losses. With the delinquency index slowing down, there might be a chance that credit industry losses may stabilize within the next few months.
Michael Dean, Managing Director of Fitch Ratings released a statement saying, “At this point, any sign of a pullback from the rate of acceleration in delinquencies is welcome news”. However, he added that whether the pullback will evolve into a trend is still not set in stone. It will take some time to work through, according to him. He also said that, in the coming months, the credit industry can expect a continuing increase in chargeoffs.
Fitch expectations put the chargeoff index rising to more than 10% in the months to come. It is also expected to remain high in the coming months. It is also expected to continue to remain high up to 2010's first quarter, when the unemployment problem is assumed to reach its peak. Currently, unemployment is at 8.9%.
In an effort to protect themselves from the continuing crisis, credit card lenders are taking measures to decrease their exposure. These measures include lowering credit limits, raising credit application standards, closing accounts, cutting down rewards systems and increasing fees and interest rates. With these in place, credit card consumers are getting hit hard and are awaiting the coming into effect of the new credit card bill which will give them some breathing space with their finances.