Personal Finance and Money Management

The statistics surrounding credit card usage and payments were released for the month of March this week. There was a great deal of apprehension about these numbers, with many worrying that in the wake of dramatically rising home foreclosures, credit card defaults could be the next shoe to drop. The numbers for March were a mixed bag, with reasons for optimism being released side by side with some of the highly anticipated bad news.

American Express released numbers this week and, as expected, they increased their annualized net charge off rate. This is the number that estimates the amount of outstanding credit card debt that will never be collected. American Express estimates that they will never collect on 8.8% of their outstanding receivable s, up from 8.6% a month earlier. Many analysts had expected the news on this to be worse.

The good news came not in the numbers that are just guesses, like how many customers will fail to pay in the future, but in the actual results from the month of March. The percentage of customers, who were at least 30 days late on their payments, decreased in March to 5.1%, down from 5.3% a month earlier. In an environment when everyone expects to see defaults on the rise, conditions actually improved during the month of March.

Capitol One released their numbers the same day, and the news was very similar. Charge off’s increased to account for future defaults, but the number of customers falling behind on their payments did not increase as expected. This number is not enough to declare the problems in the financial sector solved, but encouragement can certainly be found in this news. It could certainly be an anomaly-a lot of people receive a tax return in March and could have used that money to get caught up on bills that were past due.

With unemployment numbers and foreclosures expected to increase for the next several months, the news from credit card issuers could get worse before it gets better. The consumer isn’t out of the woods yet, and the credit card companies won’t recover without a healthy consumer.

Most analysts are calling for defaults to increase for most of the remainder of 2009 before leveling off and beginning to improve in 2010. Expect card companies to continue to tighten their lending policies, as increasing rates, capping credit lines, and closing customer credit accounts will help companies to manage increasing risk levels during these volatile times.

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