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Credit data show improvement

By Martha C. White ·
Thursday, May 19, 2011
Posted: 3 pm ET

Does new credit data show a light at the end of the tunnel? Recent news coming from credit rating agencies, network providers and the country's major credit card issuers show improvements in a variety of metrics. Moody’s Investors Service reported that charge-offs -- the defaulted accounts credit card issuers write off as uncollectible -- dropped in March.

Initial reports indicate this trend continued in April, as well. Among the six biggest issuers of credit cards, five reported a decrease in charge-offs. The remaining issuer, Bank of America, had a slight increase, but the bank also reported a lower instance of late payments, which analysts infer to mean that its future default rate will drop.

Credit card issuer Capital One Financial Corp. saw the biggest improvement; on May 16, the company released figures showing a charge-off rate of 4.97 percent for April, the lowest rate and the first time charge-offs have dropped below 5 percent since 2007. JPMorgan Chase & Co., the largest U.S. credit card issuer according to industry publication The Nilson Report, reported a default rate of 5.6 percent in April, the lowest for Chase since December 2008.

The charge-off rate in March was 7.35 percent across the board; in the second quarter of 2010, it rose to 10.9 percent, an industry high. A director at Fitch Ratings told the Associated Press that the drop in troubled accounts is happening faster than analysts anticipated. Before the recession, the overall charge-off rate was 3.82 percent. Clearly, we still have a ways to go, but this new stream of data shows that the tide might be turning.

Federal Reserve data released earlier this month shows that we're charging more again; the nation's collective revolving balance (that is, credit card debt) rose in March by an annualized rate of 3 percent. In addition, both MasterCard and Visa reported higher transaction volume in the first quarter of 2011. 

This, combined with the increase in credit card applications being sent to consumers, shows that the credit markets are finally beginning to thaw. For consumers with good credit who want to transfer a balance or apply for a low interest credit card, this is good news. Those with bad credit will probably still have difficulty when it comes to getting approved, since issuers are still shying away from riskier customers.

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