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A Healthy Outlook for Credit Card Issuers

by Bill Hardekopf

Banks released fourth quarter earnings this week and the reports show that credit cards issuers are in a much healthier position than the last few years.

Consumer use of credit cards is growing, while the default and delinquency rates continue to drop.

Credit card lending is entering a sweet spot where cardholders are charging more purchases to accounts once again while staying current on their payments.

This healthy outlook will probably lead to more aggressive marketing on the part of credit card issuers in 2012. We will likely see some new cards and offers, as well as an increase in the number of credit card solicitations in your mailbox, especially if you have a good or excellent credit score.

According to the Wall Street Journal, American Express credit card loans grew 4.5% from November to $53.7 billion in December. Capital One credit card loans grew 3.3% in December to $56.6 billion. Citi credit card loans were $75.9 billion in the fourth quarter, up almost 3% from the third quarter.

While these figures are positive for the issuers, so, too, are the default and delinquency rates. Charge-offs and late payments peaked in the summer of 2010 and have dropped rather steadily since then.

All six of the major credit card issuers showed declines in the delinquency rates in December, while four of the six issuers also showed drops in the charge-off rates.

  • The Capital One charge-off rate dropped to 3.98% in December from 4.29% in November. The delinquency rate dropped to 3.66% in December from 3.73% the previous month.

  • The American Express charge-off rate dropped to 2.3% from 2.4%. The delinquency rate dropped to 1.4% from 1.5%.

  • The Citigroup charge-off rate dropped to 5.11% from 6.36%. The delinquency rate dropped to 3.11% from 3.28%.

  • The JP Morgan Chase charge-off rate dropped to 4.11% from 4.18% in November. The delinquency rate dropped to 2.48% from 2.54%.

  • The Bank of America's charge-off rate rose to 6.05% from 5.67% in November. The delinquency rate dropped to 3.82% from 3.96%.

  • The Discover charge-off rate rose to 3.15% from 3.04%. The delinquency rate dropped to 2.32% from 2.43%.

Lower default rates are good for banks because they set aside less money for losses and this money can boost the bottom line.

Credit cardholders and issuers have both made changes that brought an excessive system of credit card borrowing and lending back under control. Many of the borrowers who could not pay off their debt have already defaulted, while others have diligently paid down their balances and used other forms of payment to avoid the high interest rate penalties. Credit card issuers have closed risky accounts, cut credit limits on millions of accounts, and tightened lending standards to cut their risk of defaults and late payments.

Bill Hardekopf is CEO of LowCards.com, a site that simplifies the confusion of shopping for credit cards. It is a free, independent website that helps consumers easily compare credit cards in a variety of categories, such as lowest rates, rewards, rebates, balance transfers and lowest introductory rates. It also gives an unbiased ranking and review for each card.

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