Bad credit
by January 6, 2010 11:22 am 79 views
Delinquent balances on U.S. credit cards reached record levels and defaults surged higher in December 2009, according to the latest Credit Card Index results from Fitch Ratings.
Fitch Managing Director Michael Dean says chargeoffs are expected to trend higher in the coming months as consumers struggle with debt burdens in the midst of high unemployment levels. Fitch expects U.S. unemployment will peak at 10.4% in second quarter-2010 and remain above the 10% threshold throughout 2010.
“U.S. consumer credit quality remains under considerable stress due to persistently weak labor market conditions,” Dean noted in the report. “As a result, chargeoffs will retest their recent highs throughout the first half of 2010.”
KEY NOTES FROM THE FITCH REPORT
• The 60-plus day delinquency rate reached an all time high of 4.54% for the December 2009 index. This surpassed the previous high of 4.45% set in June 2009. Chargeoffs crept up to 10.68% from 10.09% in the prior month but remained inside of the record high of 11.52% set in September 2009.
• From 4Q’08 through 2Q’09, Fitch’s delinquency index rose 42% as the economic environment and employment situation worsened. Chargeoffs subsequently peaked in 3Q’09 with Fitch’s index reaching 11.52% in September 2009 before receding in recent months.
• “The recent acceleration in delinquencies has not yet approached levels experienced last year,” said Senior Director Cynthia Ullrich. “With that said, seasonal patterns dictate further delinquency increases and higher chargeoffs in the coming months.”
• Monthly payment rates (MPR), a measure of how quickly consumers are paying off their card balances, fell to 17.64% from 18.57% last month. These MPRs are low compared to 2006 and 2007 when the MPR index routinely topped 20%, but are still strong compared to the average MPR of 16% since the inception of the index in 1991.
• Since recent legislative changes will restrict dynamic risk based pricing policies, issuers are mitigating against potential future risk by increasing APRs across their portfolios. This is the first time since April 2001 that Fitch’s Prime Gross Yield index has surpassed 20%. However, credit is relatively more expensive now, as the prime rate averaged 8.32% back in March 2001, whereas it is currently 3.25%.