Credit Card Charge-off Rate Continues to Rise

   

Posted: Jun 29, 2009

Credit card charge-offs have continued to grow in recent months, despite recent signs of economic improvement.

Last week, Moody's Investors Services announced that the nationwide consumer credit charge-off rate had exceeded 10 percent and that the figure was likely to peak around 12 percent before starting to improve early next year.

This is the sixth consecutive record-setting month for the charge-off rate, which is now higher than it's been in nearly two decades.

Charge-offs occur when a credit card company gives up on collecting a specific consumer's debt, although the consumer is still liable for the sum and will damage his or her credit score by not repaying it.

The charge-off rate is tied to other economic factors such as unemployment, since more people are unable to pay off balances under such conditions. This is also bad news for the credit card industry, which has already been suffering financial losses due to rising consumer default rates and other related factors.

Despite the mixed economic signals, consumers are generally feeling more optimistic, with Reuters reporting last week that its consumer confidence index had risen slightly in June, bringing it back to a level last seen in February 2008.