According to the Fitch Ratings Credit Card Index, chargeoffs on credit cards fell to 10.75 percent, which marks the third month in a row that defaults fell. A chargeoff is credit card debt that a lender no longer expects to be repaid.
Though defaults fell, late-stage delinquencies saw an increase, which is an indication that chargeoffs could be on the rise in the future. According to Fitch Ratings, the number of credit cards that were 60 days or more late increased to 4.22 percent in October after seeing a drop the month before.
“U.S. consumer credit quality measures remain pressured and chargeoffs will stay high until we see some improvement in employment conditions and in delinquency trends,” Michael Dean, managing director at Fitch Ratings, said.
The company noted it expects unemployment to crest at 10.3 percent during the second quarter of next year. Furthermore, it expects the rate to remain above 10 percent through the year, which could lead to an increase in the number of people who cannot pay off their credit card debt.
Currently, the unemployment rate sits at 9.8 percent, though many analysts expect it to rise beyond 10 percent. Though growth was seen in the country’s gross domestic product, analysts expect any improvement in employment to lag behind.
Along with affecting the bottom line for companies that issue credit cards, having higher default rates affects consumers as a whole. To minimize risk, many card issuers are being more careful in assessing customers, which may make it difficult for consumers with a low credit score to get credit cards.
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