Credit Card Debt Increases, But Delinquencies and Charge-Offs Fall To Record Lows

Responsible Credit Card ConsumersThe market seems to be as healthy as ever for credit card issuers. Continuing a nearly year-long trend, credit card users are paying off their debts at a historic rate. According to data released separately by Fitch Ratings and the American Bankers Assocation, delinquencies and charge-offs continue to fall to all-time lows, while the number of people who pay off their balance in full every month rose to an all-time high. At the same time, however, the latest Federal Reserve data suggests that credit card debt is increasing.

Credit Card Debt Increases
According to the Federal Reserve data, revolving credit, which consists primarily of credit card debt, increased from $849.9 billion in April to $856.5 billion in May. That jump also represented an increase of 9.3% year-over-year, the largest annualized increase in over a year.

Delinquencies Fall to Record Lows
The American Bankers Assocation, however, reports that bank card delinquencies–payments more than 30 days late–fell to their lowest levels since June 1990 to 2.41% of all accounts in the first quarter of 2013. That number is also significantly below the 15-year average of 3.87%.

Fitch Ratings had similar findings for the second quarter:

  • Delinquencies of more than 60 days averaged a record low of 1.48%, compared to 1.63% in the second quarter of 2012.
  • Charge-offs, which occur when an issuer stops trying to collect on a delinquent account, reached a record 6-year low of 3.87%, a 26% decrease from 5.23% in the first quarter of 2013.
  • The monthly payment rate, which measures the rate at which cardholders are paying back their balances, rose to an all-time high of 25.3%.

Fitch, however, doesn’t expect these records to continue forever. According to managing director Michael Dean, “Credit card losses are nearing a plateau and will likely start to trend modestly higher as 2013 comes to a close.”

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