According to the Moody Credit Card Index, credit card charge-offs have seen a recent increase.
With more consumers having problems with credit card debt, charge-offs, which are credit card debts the banks no longer anticipate to be repaid, were up to 10.76 percent during June, up from 10.62 percent in May.
Moody’s predicts that charge-offs will climb higher in 2010, reaching a peak between 12 percent and 13 percent.
Defaulting on credit card payments is a looked upon very seriously. It damages a person’s credit score and makes it more difficult to get a loan in the future. The most important factor in a credit score is payment history. Once you have several charge-offs it can take a year or longer before your score goes back up.
One of the factors cited for driving a climb in charge-offs seems to be unemployment. According to the U.S. Bureau of Labor Statistics, the unemployment rate is at 9.5 percent. Moody’s predicts the unemployment rate will hit between 10 percent and 10.5 percent, which coincides with the predicted charge-off rate.
Though charge-offs saw an increase, the number of credit card debt delinquencies declined between May and June. According to the report, delinquencies, which are payments over 30 days late, fell from 5.81 percent to 5.97 percent.
However, the decline in credit card debt delinquencies could be the result of factors such as customers paying down their debt with tax refunds. If that is the case, delinquencies may climb again. Moody’s says that if delinquencies continue to decline, charge-offs may follow.