| May 13, 2011

Charge offs may slip below 4 percent this year

Instances of defaulted credit card debt have declined substantially in the last several months, and that trend will likely continue for the rest of the year until the total charge off rate falls to a 20-year low.

During the recession, the nation’s six top credit card lenders – American Express, Bank of America, Capital One, Citi, Discover and JPMorgan Chase – significantly tightened lending restrictions in an effort to stop hemorrhaging money as a result of charged off account, and that practice has led to significantly lower default rates, according to a report from the Associated Press. As a consequence, Moody’s Investors Service now predicts that charge offs will fall to less than 4 percent by the end of the year, a rate not observed in the lending industry for 20 years.

The nation’s top lenders alone lost about $74.5 billion combined during the recession, as charge offs peaked during the second quarter of 2010 at 10.9 percent of all accounts, the report said. By increasing lending restrictions significantly, the lenders locked even slightly risky borrowers out of the credit system entirely.

However, the recession also changed the way many consumers felt about credit card debt, leading to less use.

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