During and following the financial downturn, lenders wrote off millions of uncollectable credit card accounts, but have enjoyed large, continual declines in the last year or more. But some experts say that trend won't continue through the end of the year.
Some analysts are now predicting that credit card charge offs are likely to decrease somewhat between the first and second quarters, and then start expanding again in the final half of 2012, leading to charge off rates for the nation's largest lenders finishing the year higher than when it began, according to the new report from Fitch Ratings entitled "Credit Cards: Asset Quality Review." Currently, the net charge off rate for the nation's seven largest credit card lenders stands at just 4.02 percent of all accounts, and based on current trends in delinquency - which are usually considered indicators of future charge off fluctuations - will likely slip further, if only slightly, by the end of the second quarter.
The current default rate observed by these lenders is already down from 4.2 percent at the end of last year, and has slipped significantly from the 6.39 percent rate seen at the end of 2011, the report said. Further, it's also well below the 6.51 percent average observed between 2007 and 2011. Meanwhile, delinquencies of 30 days or more which are not yet considered irretrievable are down from the five-year average in that category as well.
Part of this trend may have to do with a large number of consumers no longer having their credit card accounts - either by choice (those who want to keep spending under control and avoid racking up debt), or not (those who previously defaulted and cannot gain access to new lines of credit). This trend was seen largely in the years following the recession.
But lately, portfolios for the largest lenders have more or less held steady, declining extremely slightly, and smaller card issuers have actually seen them expand, perhaps indicating consumers are once again comfortable dealing with their accounts, the report said. Fitch projects that portfolio growth will take place across the board by the end of the year, likely in the low single digits.
And as more consumers start to open new credit card accounts again, be it because they are feeling better about their personal finances or because lenders are once again broadening credit standards and extending offers to subprime borrowers, it's likely that the current default rates - which are at or near all-time lows for all major lenders - will begin to trend back toward the historical average, the report said.
Experts had often cited previous instances of delinquency and default as the driving force behind the decline, as those whose credit ratings dropped below the tightening standards held by lenders as a result of the downturn were unable to gain access to credit, which in turn prevented them from defaulting again.
