Problems for credit card companies are far from over it seems. Capital One, one of the major credit card companies in the United States recently announced an increase in their charge off rates for the month of December.
Based in McLean, Capital One stated a rise in their annual net charge off rates for U.S. credit cards amounting to 10.14% for the month of December during a recent filing at the Securities and Exchange Commission. During the previous month, November, the charge off rate for Capital One was at 9.6%.
Credit card charge off rates are the percentage of credit card loans which credit card companies do not expect to be repaid compared to the total loans that the company has. The credit card industry saw an alarming rise in charge off rates during the first few months when the economic crisis hit. Consumers have seen their personal wealth shrink considerably due to this economic crisis. Coupled with a rise in the unemployment rate and the result has been a continuing inability of many consumers to pay off credit card debts. Although the rise in charge off rates have abated somewhat during the second half of 2009, Capital One's charge off rate hike for December indicates that recovery is still far off for both consumers and credit card companies.
There is a bit of good news, however. Although charge off rates went up for Capital One last December, the credit card company also saw a flop in delinquent credit card debt payments. For December, Capital One's rate for loans delinquent for a minimum of 30 days dropped to 5.78%. During November, the company's delinquency rate was at 5.87%.
Delinquency rates are important for credit card companies as they are indicators for possible future loan losses. A higher delinquency rate means more consumers are late in paying off loans. In turn, this means that an increase in charge off rates may be coming since the more consumers are late for their payments; the more likely it is that they will default in their credit card loans.
For their international credit card operations, Capital One reported a rise to 9.5% in their charge off rates, an increase from the previous month's rate which was at 9.5%. The credit card company's international delinquency rate however dropped to 6.55% from the previous month's 6.6%.
Capital One, however, saw bad news from their auto loan unit for both their charge off ratings and delinquency ratings. The credit card company's charge off rate went up to 5.68% in December from 3.67% in November. The delinquency rating for their auto loan unit also went up to 10.03% for December from the previous 9.57% of November.