Delinquency Rates Still Dropping; Credit Card Companies Worry About Profits

   

Posted: Sep 22, 2010

New reports have shown that delinquency rates across the country are continuing to decline, and for credit card issuers, this has become a cause for worry. Many companies are finding it difficult to generate revenue due to tighter regulations imposed by the Credit Card Accountability, Responsibility and Disclosure (CARD) Act. As Americans gain a better grasp on their debt, credit card companies are left to wonder what the future holds for the industry.

According to the Wall Street Journal, borrowers lowered their revolving credit lines — mainly card balances — by approximately $4.5 billion in the month of June. Since the end of 2008, they've reduced those balances by about $131.6 billion.

"Consumer de-leveraging by definition means that consumers are paying down debt rather than spending and borrowing," Capital One's chief executive Richard Fairbank told the paper. "While this pressures loan growth, it also contributes to the improvement in delinquencies and charge-offs."

By paying off credit card debt, consumers can lower their debt-to-credit ratio, a factor that's used in credit scores calculations. Banks are more likely to lend money to applicants who can demonstrate that they have the ability to repay debt.