Credit card defaults are up -- is the consumer maxed out?

Posted Sep 16th 2009 12:20PM by Connie Madon
Filed under: Forecasts, Consumer Experience, Economic Data, Personal Finance, Small Business, Financial Crisis

It's clear that we are in the midst of a credit bubble that has burst. The fallout is being felt throughout the economy but is most prominent in credit card defaults, which are rising and will continue to rise, according the leading analysts.

Two of the biggest credit card issuers are getting clobbered. Bank of America (NYSE: BAC) saw its defaults rise to 14.54% in August from 13.81% in July. Citigroup (NYSE: C) saw defaults rise to 12.14% in August from 10.03% in July. Following close behind was JPMorgan Chase & Co. (NYSE: JPM) at 8.76%, up from 7.92%.

The trend is clear. Defaults are on the rise. Banks are in a defensive mode. They are slashing credit lines to the bone, even for good customers, and raising rates to astronomical levels. Some analysts are saying that things are getting better and not to worry. These guys don't seem to get it. Until we see defaults falling, things are not getting better.

The credit bubble that burst last year still has a long run ahead of it. Foreclosures are still rising, as is unemployment. So there will be more unwinding of all types of credit, not just credit cards. The home market foreclosures are now spreading to the commercial market. These guys also use credit cards, and defaults will soon rise among small and medium size businesses.

Eventually the excesses will be wrung out and we'll get back to more normal lending and credit policies. But for now, the best course is to pay down debt if you can to avoid getting into another credit crunch like we have now.

Has your credit line been slashed? Have your rates been raised?

Tags: BAC, Bank of America, Citigroup, credit bubble, credit card defaults, foreclosures, inthenews, JPM, JPMorgan, unemployment

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Reader Comments (Page 1 of 1)

9-16-2009 @ 12:49PM

Codey H. said...

I instantly credit it to companies jacking up interest rates upwards of 10-15%. I know personally I had an 8.9% card go to 24% with no late payments or other causes for default.

9-16-2009 @ 2:42PM

Mike O said...

Same here. Amex jacked my rates even though I have been with them for the better part of a decade, used the card frequently, carried reasonable balances, and made sizable monthly payments on-time.

Thanks Amex!

My goal is to have the Amex paid off by Jan 2010 and minimize it's use. Either I pay in cash or use the Amex and pay in-full each month.

That's what they get for doing me the 'favor' of jacking my rates for selfish reasons.

9-16-2009 @ 1:28PM

beasleyjab1 said...

If they keep raising rates you will never get them payed off.

9-16-2009 @ 2:49PM

numerwan said...

BoA Raised my 7% to 15% with no rhyme or reason... "because we can" and they wanted to refer me to credit counseling to help... Like i need help with a $2K bill and an pristine credit score...

I paid them off in cash and told them to suck it... Its pathetic how credit companies can stiiiillll find a way to screw you after the Credit customer bill of rights was released...

"but we sent you a letter" is what they would claim...

9-16-2009 @ 3:07PM

tenna77591 said...

Most everyone's credit card rates are too high. Make a phone call to the company and ask for lower rates. They do listen occasionally. If not, get them paid off or down substanially because financial rates of interest will be moving higher soon...When that happens, credit card companies will follow suit. http://www.mutualfundwealth.com/