Fitch, one of the big three American credit ratings agencies for corporate credit accounts, reports that credit card chargeoffs are rising. Fitch's Chargeoff Index measures the number of accounts that are written off by banks.
In April, the Index increased .27% to reflect that more accounts were written off as a loss in April than in March. The total charge off rate remains at 5.44%, meaning that 5.44% of all credit cards are eventually written off by credit card issuers as unrecoverable. This ratio is surprisingly low given the American unemployment rate, which rests at just over 8 percent or 8.1% as of the latest report from the Bureau of Labor Statistics.
Some Improvements
Despite growing chargeoffs, accounts listed as delinquent for being 60 or more days late declined in the April period. Credit card companies expect to collect on .11% more credit card balances listed as delinquent as they had in April. In total, delinquent accounts represent only 2.03% of all credit card balances.
Incredibly, prime borrowers are still making larger payments on their credit cards. The prime monthly payment rate fell slightly to 21.44%, but remains near a high of 21% established during the previous 12 months. A high monthly payment rate indicates that consumers are cash rich, and carry sufficient cash balances to make more than the monthly minimum payment each month. Supposing no future increases in credit card spending, prime borrowers could substantially remove all their credit balances within a 5-month period.
Chargeoffs and delinquencies are the primary driver of credit card interest rates. Seeing as 5.44% of all balances are written off, and 2.03% of balances are very late in repayment, credit card companies have to pass on much higher interest rates to consumers. A falling default and delinquent account rate could be a boon for consumers who are always on time yet maintain high credit card balances.