Default Rates Continue To Be A Problem As Credit Industry Hikes Rates

As the credit crisis continues, credit card companies are drastically increasing their interest rates, further worsening the financial situation of credit card holders. If one were to look at the current statistics on defaults, it can easily be seen why credit card companies are upping their interest rates.

According to the latest report, the largest bank in the United States, Bank of America, saw their default rates rise to 13.8% from their May figures which was at 12.5%. Default rates are debts that credit companies don’t expect to get paid and, considering that the biggest bank in the country is conceding a loss of 14% to defaults, it is quite clear why Bank of America has seen fit to tighten their business practices and reduce their risk exposure. Unfortunately, for the credit card holders, this means increased interest rates, increased fees and the controversial switch from the traditional fixed rate to a variable rate of many credit card subscribers. The credit company is basically just trying to make up for their loan losses by increasing their earnings in other business areas.

Credit card holders find it difficult to accept what credit card companies like Bank of America are doing. The existing economic instability is burden enough for most credit card holders without having to contend with an increased interest rate in their cards. However, many credit card holders are still defaulting on their payments and credit card companies have had to issue massive charge-offs. What’s more, analysts expect the current default rates to rise as the country experiences one of the worst unemployment crisis’ in history.

Unfortunately for credit card holders, they are basically stuck with what their credit card companies impose on their credit cards. As of now, credit cards still have the capabilities to be more arbitrary with their rate changes. This will most probably stop by February of next year, the scheduled full activation of the credit card bill.

While Bank of America saw a huge increase in their default rates, other credit companies are seeing different figures. Citigroup saw no change from their May defualt figures of 10.5%. JP Morgan defaults dropped to 8.04% from last May’s 8.36%. Discover also saw their default rates go down to 8.75% from 8.91%. American Express default rates also fall a mere .1%, 9.9% in June from May’s figures showing default rates of 10.0%. Like Bank of America, Capital One experienced a rise of defaults and saw their rates go up to 9.73% from 9.41%.