Credit card default rates have stayed low, even as foreclosure rates have more than doubled in many areas. Now, credit cards are also showing signs of trouble.
According to a study by the Associated Press, the dollar amount of credit card debt that is at least 30 days late increased 26% in October from one year prior. This represents a dramatic increase that will result in greater defaults.
From a credit card issuer perspective, chronically delinquent accounts could increase revenues slightly. However, substantial charge-offs are expected that will cause billions in industry losses.
Consumers will have an even harder time coping as late fees and higher minimum payments make it harder to get caught up. Even current accounts may see higher than normal interest rates in order to help creditors stay afloat.
Subprime mortgage losses have hammered some of the major financial companies, including Bank of America and Citigroup. Now they are anticipating huge credit card charge-offs.
Somehow, Chase was able to buck the trend. They actually showed a drop in delinquencies and in defaults. According to Chase, this was due to an increased focus on prime borrowers and aggressive account management.
One thing that most credit card issuers can surely expect is even greater delinquincies and defaults in 2008. This could force some creditors to seek additional funding from outside sources, as Citigroup has already done.
