Consumer credit card defaults may start rising again

In recent years, as the national economy continued to improve and consumers began to regain their financial footing, instances of late credit card payments have been declining significantly. But now experts say that trend might end up reversing itself in the near future.

Currently, the nation's largest credit card lenders are enjoying near record low delinquency and default rates, but some analysts are concerned that instances of these problematic accounts are becoming so rare that they must logically start growing again in the near future, according to a new report from Fitch Ratings entitled "Credit Cards: Asset Quality Review." Current delinquency trends, which are widely considered an indicator of future charge offs, indicate that defaults will likely fall very slightly in the second quarter of the year from their current position of just 4.02 percent of all accounts, down from 4.2 percent at the end of 2011, and a significant decline from 6.39 percent seen in the same quarter last year.

That figure is also well below the average charge off rate observed between 2007 and 2011, which stands at 6.51 percent, the report said. In addition, instances of accounts that are 30 days or more behind on payments but are not yet considered irretrievable by lenders are well below their five-year average as well.

As a result of these trends, Fitch projects that rates of credit card default will likely continue to expand again in the near future and should be higher at the end of 2012 than they were when the year began, the report said.

Why could this change take place?

During and immediately following the recent recession, credit card borrowers became extremely cautious about the way they dealt with their outstanding credit card debts, and millions ran into financial troubles so significant that their balances had to be written off by lenders as uncollectable. This led to declines in credit scores for those who defaulted and a greater tendency toward controlled spending among those who wanted to avoid similar problems.

As a consequence, responsible and irresponsible borrowers alike either largely withdrew from the borrowing system or were forced out, allowing lenders to suffer fewer charge offs over time as a result. But now, many are once again expanding their offerings for new credit cards, even to those who have had some amount of trouble in dealing with such accounts in the past. Meanwhile, many borrowers have begun to maintain larger balances again on their credit cards as a result of the improving economy and their improved credit scores.

And because defaults are currently at or near all-time lows for all major lenders, expanded lending and borrowing will only cause charge offs to begin moving back toward historical averages.

Consumers who are interested in borrowing again in the wake of the recession may first want to check their credit reports to make sure there are no unfair markings having an adverse effect on their credit ratings.