The Credit Card Indices report from Moody’s Investors Services showed that the number of charge offs in December dropped from 10.56 to 10.32 percent. When calculating the number for the index, Moody’s takes an annualized percentage of written off credit card debt as a portion of all outstanding principal balances.
The drop in December was certainly not enough to rescue the year from an increase in defaults, as 2009 saw that number rise 2.5 percentage points. Furthermore, the ratings firm said it expects charge offs to continue to rise as more people find themselves without a job.
“Our forecast for the charge off rate is mainly driven by our expectation for the unemployment rate to plateau during the middle of the year in the neighborhood of 10.5 percent,” Moody’s senior vice president William Black said.
One bright spot noted by Moody’s is the fact that early-stage delinquencies on credit card debt dropped for the second straight month. Furthermore, December stopped a four-month increased in the number of delinquencies, as the percentage of the total outstanding balances that was late on payment fell from 6.2 to 6.09 percent.
The drop in credit card delinquencies could mean that defaults could fall as well, as consumers find ways to make their credit card debt payments.
What may help consumers even more is the fact that new credit card rules take effect in February of this year, which will limit interest rate and fee increases. However, some card companies are trying to get around this by switching cards to variable rates.
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