The recent recession has created a consumer unwilling to spend money on big ticket purchases over the last few years. In addition, credit card issuers have been tightening their standards making it tougher to qualify for credit. This has caused the average for credit card charge-offs to decline over the last 6 to 12 months.
A few years ago with the sluggish economy, falling home prices, and high unemployment, consumers weren’t worried about their creditworthiness and thus neglected to pay their credit card bills. They also had no interest in signing up for new credit.
Although the last year brought about a welcome change to consumer mentality as they once again began to sign up for credit cards, there was a problem. While consumers were ready and willing to sign up for new credit, they were not able to qualify to due their financial situation.
The good news is that over the last several months the economy has picked up a bit. As a result, debtors are becoming more and more interested in rebuilding their credit at the same time credit card issuers are relaxing their risk standards. Because debtors have not been spending, they have more money set aside to pay off their past due accounts which they will need to do in order to qualify for new credit and take advantage of the improving marketplace.
The above combination will create an increase in credit card debt over the coming months and years and should stem the decline in charge-offs we have recently seen.