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Credit card woes surged this year

Steep rises in defaults and delinquencies may signal more trouble ahead for the economy.

December 25, 2007|From the Associated Press

Americans are falling behind on their credit card payments at an alarming rate, sending delinquencies and defaults surging by double-digit percentages in the last year and prompting warnings of worse to come.

An Associated Press analysis of financial data from the country's largest card issuers also found that the greatest rise was among accounts more than 90 days in arrears.

Experts say these signs of the deterioration of finances of many households are partly a byproduct of the sub-prime mortgage crisis and could spell more trouble ahead for an already sputtering economy.

"Debt eventually leaks into other areas, whether it starts with the mortgage and goes to the credit card or vice versa," said Cliff Tan, a visiting scholar at Stanford University and an expert on credit risk.

"We're starting to see leaks now."

The value of credit card accounts at least 30 days late jumped 26% to $17.3 billion in October from a year earlier at 17 large credit card trusts examined by the AP. That represented more than 4% of the total outstanding principal balances owed to the trusts on credit cards issued by banks such as Bank of America Corp. and Capital One Financial Corp. and for retailers including Home Depot Inc. and Wal-Mart Stores Inc.

At the same time, defaults -- when lenders essentially give up hope of ever being repaid and write off the debt -- rose 18% to almost $961 million in October, according to filings made by the trusts with the Securities and Exchange Commission.

Serious delinquencies also are up sharply: Some of the nation's biggest lenders -- including Advanta, GE Money Bank and HSBC -- reported increases of 50% or more in the value of accounts that were at least 90 days delinquent when compared with the same period a year ago.

Until recently, credit card default rates had been running close to record lows, providing one of the few profit growth areas for the nation's banks, which continue to flood Americans' mailboxes with billions of letters monthly offering easy sign-ups for new plastic.

Many economists expect delinquencies and defaults to rise further after the holiday shopping season.

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