Instances of consumers falling so far behind on their credit card payments that the lenders controlling the accounts had to write off the debt altogether fell once again in the second quarter of the year.
Credit card loss rates, which are an indicator of the severity of charge offs across the lending industry, slipped to all-time lows in the second quarter of the year, according to new data from Fitch Ratings. In all, charge off rates fell to 3.7 percent across the portfolios of all of the nation’s six largest credit card lenders. That was down from both the 4.01 percent observed in the first quarter of the year, and the 6.68 percent average seen between 2007 and 2011.
This change came as somewhat of a surprise to experts because, in general, charge off rates have historically had the tendency to decline more or less in line with concert with those in unemployment, the report said. However, these recent drops came even as hiring has remained stagnant for some time. As a result, Fitch believes that instances of charge offs may be approaching the point at which they bottom out.
That, in turn, will likely lead to increases at some point in the early part of next year, as charge off rates move back toward historical averages, the report said. That will also likely be driven by increases in borrowing, as more consumers return something resembling to pre-recession card use habits as a result of continual economic improvements seen in the last few years.
In fact, that shift may have begun already, the report said. Though the Federal Reserve Board saw revolving credit totals – typically considered to be an indicator of total credit card balances nationwide – slip in 11 consecutive quarters in recent years, that run of reduction was snapped in the final three months of 2011, when balances grew 0.2 percent. They have since expanded 0.5 and 0.6 percent, respectively, in the two quarters since. That trend could result in expansion of balances reaching into the low- to mid-single digits over the course of 2013.
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Consumers have been more cautious in dealing with credit cards in general since the end of the recession, but given a number of improving economic indicators, they could also be tempted to return to their old habits.