Credit Card Defaults Hit Record High in August

The credit card carnage is far from over, as evidenced by a recent report from credit rating agency Moody’s.

Credit card defaults rose to a record high in August and delinquencies increased for the first time since March.

Early-stage delinquencies, defined as those 30-59 days late, jumped to 1.65 percent from 1.41 percent.

Loans at least 30 days late increased to 5.8 percent from 5.73 percent, while charge-offs climbed to 11.49 percent from 10.52 percent.

Credit card defaults have been on the rise thanks to surging unemployment and the diminished benefits tied to tax returns, which have since come and gone.

Moody’s expects the credit card sector to begin to recover in mid-2010 when charge-offs peak between 12 and 13 percent.

Banks and card issuers typically charge-off (write it off as a loss) credit card debt after six months without collection.

Credit card issuers have been closing millions of accounts since the crisis got underway a couple years ago; credit limits have also been slashed for millions of card holders to mitigate risk.

This has led to a great deal of concern over whether cut credit lines lower credit scores, though a recent study by Fico found that those who had lines cut at no fault of their own didn’t see a related drop.

Those with negative information tied to a credit score cut were more likely to see a decline in their credit score; makes sense.

Related Topics:

1. Credit Card Lates Surge as Mortgage Crisis Rolls On
2. Credit Card Defaults and Charge-Offs Rise
3. Credit Card Use Up in October
4. Cut Credit Lines Don’t Really Lower Credit Scores
5. Credit Card Debt on the Rise