Although credit card defaults remain elevated, Capital One and Discover reported lower credit card default rates in October. Despite this drop, credit card defaults remain elevated, as they have been for nearly a year, and many expect default rates to remain elevated well into 2010.
The problem with credit card defaults is two-fold. First, it creates losses for credit card companies which, in turn, lead credit card companies to raise interest rates, annual fees, and reduce the amount of available credit. This ultimately leads to tougher approval standards, which limit the ability of consumers to lock in low rate balance transfers, forcing them to repay their credit card balances at higher interest rates than the current interest rate environment would normally dictate.
A large percentage, if not a majority of Americans have been hit with a rate increase or credit limit cut. A clear majority have seen various fees, such as balance transfer fees or international transaction fees already increased. Should the trend of rising credit card defaults continue, more Americans should expect to see an increase in annual fees (which is not covered by the new credit card laws) as well as decreases in the quality of rewards programs.
A further increase in credit card default rates may make credit even less accessible than it is today, leaving consumers stuck repaying credit card debt at elevated interest rates of as much as 29.99%. Lets hope the default rate stabilizes, as increased losses incurred by credit card companies will surely be paid for with the money of consumers who actually pay their bills on time.
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