Store Branded Credit Card Defaults Go Up Says Fitch

Analysts from Fitch Ratings recently announced that defaults in store branded credit card accounts rose to record levels during the previous holiday season’s shopping spree. They also expect this trend to continue into 2010.

Fitch Ratings tracks in an excess of $65 billion in principal receivables for store branded or private label credit cards. These credit cards are also distributed by more than a hundred and sixty five retailers nationwide, including major retailers such as Best Buy, Wal-Mart, Home Depot and Sears.

The report from Fitch shows that for every eight dollars of receivables for store branded credit cards, one dollar is written off as uncollectable for the November collection period taken as an annualized figure. In December, the Retail Credit Card Charge off Index of Fitch Ratings broke a two month trend of decline. It rose by 1.2% compared to the previous month, bringing the charge off index to 12.56%. An all time high for charge off rates was seen in August of 2009, amounting to 12.81%. During the year 2009, charge off rate was averaging at 11.8% which. This is 42% higher than the historical average which is 8.34%.

Managing Director of Fitch Ratings, however, sees some positive signs, stating that, while the charge off index results of 2009 were negative all throughout the year, deterioration has begun to moderate more recently. He says that losses stemming from charge offs may get lower as credit card issuers set up stricter standards for credit card applications and become much more choosy in offering new accounts to consumers.

Still, analysts from Fitch Ratings expect store branded charge off rates to remain at high levels, at least throughout the first half of 2010. This will primarily be fueled by the continuing high unemployment rate the country is experiencing. However, even with the high charge delinquency and charge off measures, Fitch analysts still expect that, throughout the year, retail card ratings will remain stable.

Aside from tightening credit card standards, the actions of consumers and clients may also prove to have a stabilizing effect among credit card delinquency and charge off rates. According to Fitch, usage of revolving credit dropped at an annual rate of 18.5% for the month of November in 2009. This is the largest dollar value drop the credit industry has seen since 1968.

Analysts from Fitch Ratings also foresee that demand for consumer credit, specifically store branded credit, will remain low as long as income growth and employment among consumers or credit card clients continue to remain weak.