Credit Card Blog

As more individuals make an effort to pay back their debt, consumer borrowing has been declining. Revolving credit – mostly credit-card borrowing, has declined at 13.1% the annual pace in February, while non-revolving credit, like car loans and school loans, dropped at 1.6% the annual rate in the same month.

The American Bankers Association released survey results that showed defaults on consumer loans dropped greatly during the fourth quarter. It’s too soon to say the worst is over though, as the credit card defaults are still at historical highs. J.P Morgan Chase (as well as other credit card lenders and loan lenders) predict they will continue operating at a loss for the rest of 2010.

Credit card issuers are continuing to reduce credit lines when issuing credit, canceling cards for their riskiest customers and closing unprofitable credit cards. Banks are writing off more credit card debt as noncollectable. Bank of America Corp reduced the affinity card programs typically targeted to college alumni associations, charities and social groups by 12%.

As consumers reduce their spending to focus on paying back debt, the recovery of the economy will also be slowed. While individual households may benefit from less debt, less consumer spending hurts the economy as it accounts for about 70% of the economy’s financial picture.

Pat yourselves on the back America. According to a report from the AP, more Americans are paying their credit card payments on time, a sign that the economic recovery is beginning to take hold on main street.

Reports from major credit card issuers like Bank of America, Capital One, Discover and American Express all showed small declines in delinquency rates in March from February.  Delinquency refers to when payments are received over 30 days late.

Despite the good news the data on charge-offsthe amount banks write off because they assume they will never receive payment, is more mixed, with some banks having to write off and some less.  In 2009, banks wrote off a record $83 billion dollars of debt.  But the consistent rising of on-time payments mean that write-offs will likely trend downward as the year progresses.

via the NYTimes.

According to a recent article posted on businessweek.com, credit card rates for small business cards are on the rise. Thanks to the bad economy and higher loss rates, issuers have been raising rates.

According to data from BillShrink, the APR on 33 small business credit cards went up from 11% last August to 12.3% in March 2010. While rates have gone up for consumer cards as well, some of that rise is said to be due to the CARD Act reforms passed last year. Those new regulations don’t cover small business cards however.

If the government decides to extend credit card reform to cover small business cards, expect lower credit lines, and generous rewards, but with lower fees and less rate changes and penalties. Small business card purchases are still seen as a growth market in the industry and the so issuers are competing for new customers.

Most of the increase in interest rates is likely due to the increased risk credit card lenders take when the economy is suffering. The rates are projected to continue their upward trend according to Ben Woolsey an analyst at creditcards.com. In regards to credit card interest rates he says, “It’s going to keep edging upward a bit, because credit losses aren’t going to improve for the banks until unemployment heads down.”