Charge off rates may be at quarterly, monthly peak
Like any other late payment, a credit card charge off will remain on a consumer’s credit report for seven years.
And while its name implies that the debt is written off their lender’s books, consumers who find themselves in this fate are often still obligated to pay off the debt they incurred. A recent report by Moody’s Investor Services showed that the number of Americans whose debt was written off during the first quarter of 2010 may be higher than ever before.
At 11.12 percent of all U.S. credit cards, the quarterly rate reached its highest level in the index’s 20-year history. This is likely to be the peak quarterly rate to be recorded during this credit cycle, according to the report, while the monthly rate may reach its highest point in April or May.
The number of charge-offs in March was 11.31 percent, 13 basis points above February’s level. Among the major credit card lenders, Capital One Financial Corp. experienced the largest growth in debt deemed uncollectible last month, while delinquency rates fell among the company’s cardholders.
Delinquencies on credit cards in March fell to 5.79 percent, representing the fifth consecutive month of decrease and bringing the rate close to those reported last August. These numbers grew last fall and may be a leading factor behind the current growth in charge off rate. A fall in delinquencies may also indicate growing efforts by consumers to rein in their payments.
The company’s payment rate reached 18.21 percent, a 134 basis point increase over February’s numbers. This jump may be attributed to the greater number of collection days in March, according to the report, as well as improvements in principal for consumers.
“We expect seasonal trends and a nascent consumer recovery to result in lower delinquency rates, which should lead to lower charge-off rates in the months ahead,” said William Black, senior vice president of Moody’s.
Steady income plays a major role in determining the charge off rates experienced by Americans. Recent data from the Bureau of Labor Statistics showed that unemployment remained at 9.7 percent for the third consecutive month in March, while the economy added about 162,000 jobs.
Those who suffer a charge off may be able to negotiate its removal from their credit report after paying the balance back in full. This type of arrangement must be made through their lender and can lead to stronger borrowing ability if successful.
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