Credit Card Losses Slow Down

Banks and card issuers across the U.S. breathed a sigh of relief as new industry figures pointed to a stop in the continuous losses the credit industry suffered earlier this year. The news came as a welcome relief to many card issuers with industry losses estimated to have reached an all-time high just a few months ago.

According to Fitch Ratings, credit card losses have gone down in July, ending five months of consecutive month-on-month losses. The financial body said that the charge-off rate dropped to 10.55 percent in July, down from 10.79 percent in June. Delayed payments, which have increased significantly in the last 12 months, have also gone down substantially in July. Researchers pointed out that cardholders have chosen to pay more of their dues in the said month, compared to June.

However, credit analysts warn that it may be too early to assume that the credit industry is well on its way to recovery. Experts explain, though, that the figures are promising and are showing significant improvements with regards to the card companies’ record losses. They also add that card issuers and banks can expect to see losses stabilize for the next few months.

Fitch Ratings managing director Michael Dean says that the research body still needs to see considerable changes in delinquencies and personal bankruptcies before safely assuming that the credit industry is recovering. Dean also explains that employment figures have to improve significantly for analysts to consider the credit situation normal.

Charge-off rates rose some 45 percent from February to July of this year. While the figure has tapered off in recent months, it is still 63 percent higher than last year. Delayed payments are also 40 percent higher this year compared to last year’s figures.

The study of Finch Ratings also included promising news for card companies. Financial analysts say that this year’s fourth quarter credit losses may not be as high as previously though because of the stabilizing losses in recent months. Specialists explain that the initial momentum gained by the high incidence of payments may very well carry over to the next months, resulting in lower losses by the end of the year.

The sudden spike in delayed payments have prompted banks and card companies to raise interest rates and slap hefty penalties on cardholders who fail to settle their balances on time. As a result, profits from credit loans across the industry fell below the 5 percent limit to 4.88 percent, the lowest since November 1998.