March 13th, 2009
Credit Card Defaults on the Rise
While the market has seen its first signs of life in months with a 3-day rally, stocks are slightly down today. The announcement of Citigroup actually making a profit spurred investors back into the market, resulting in the Dow Jones rising nearly 10% over the three day period. Trading activity has slowed today, most likely due to investors trying to lock in profit.
Obviously, there is a great amount of uncertainty on the health of the economy and when things will start getting better. This week’s up tick in the financial markets is a good sign, but I’m sure that we have not reached the light at the end of the tunnel. Maybe we can see it off in the far distance, but we’re not there yet. Here’s a case in point, the rise in credit card defaults.
Plenty of media focus has been on the failing housing sector and the troubled mortgages the banks and lenders have been trying to modify. However, just like the amount of foreclosures nationwide, the amount of credit card defaults is on the rise, and will continue to rise as more and more consumers are in a vicious cycle of using credit cards to pay for necessities they simply cannot afford. Once these debts are unpaid and sent to collection, banks will have to charge them off, or simply write them off as a loss.
As you can imagine, these losses are significant and growing and more people find themselves unemployed. Amex is offering $300 to certain cardholders to pay off their balance and close their account in order to manage their overall debt profile. In recent years, Amex has been expanding their customer base outside their typical wealthy customers. However, rising credit losses have force their hand and this is one way for Amex to cut costs and save on credit card defaults.
Other credit card companies have been closing inactive accounts and reducing customers’ credit lines in order to combat these mounting losses. Be aware, closing these accounts may affect your credit negatively and you may want to check your credit score. Additionally, these companies are discontinuing efforts to gain new customers in this down economy. This is just another contributing factor in today’s troubled economy and points to a prolonged recession.
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I didn’t know canceling your card had an adverse effect on your rating. If I had a dormant card I would cancel so it could not get into the wrong hands.