By EILEEN AJ CONNELLY, AP Personal Finance Writer
NEW YORK (AP) — Fewer credit card accounts slipped into default in December than in any other month of 2010, and signs point to further improvement ahead.
All six of the biggest card issuers Tuesday posted their lowest rates for charge-offs, or accounts written off as uncollectible. Citibank, which has had some of the highest charge-off rates over the past two years, posted the biggest decline. It wrote off 8.34% of its card balances in December, down from 9.4% in November and well below the high of 11.55% posted in March.
Discover, Chase and Capital One also reported substantial declines.
While the rates of balances companies wrote off declined consistently throughout the year, they remain high by historical standards.
"There are some good improvements," said Mike Dean, a managing director with Fitch Ratings. Fitch's charge-off index, which tracks the industry, remains near record levels, he said. "We've seen some better numbers there, but nothing to say, 'Wow!'"
Dean said he expects charge-off rates to continue improving, but noted that the defaults are "highly correlated" to the unemployment rate.With the jobless rate forecast to remain high throughout the year, it is difficult to predict when charge-offs will return to normal levels, said Jeff Hibbs, an analyst with Moody's Investors Service.
Industry wide, the charge-off rate peaked in the second quarter of last year at 10.37% of balances, according to the latest data from the Federal Reserve. In the two years prior to the recession, it averaged 3.82%, Fed records show.
Credit card debt has been dropping the last two years, reflecting a combination of factors, including individuals paying down balances and credit card companies cutting the amount of available credit and writing off what they can't collect.
The elimination of many card users who could not pay their bills from the pool of borrowers through charge-offs is one reason for the lower charge-off rates. Hibbs said that the customers who have been able to keep paying their bills despite the downturn and the spike in unemployment have proven they are trustworthy borrowers.