@bs6054 wrote:I think what Revelate means is that charge off (when the issuer writes off the debt) is at the end of long process (late, default, collection, writeoff) and so any improvement in the figures, if not random, is due to policies implemented much earlier.
So if a bank today discovers the magic formula for users who will default, and don't issue those people any cards, the bank will still see charge offs for many months or years, as existing accounts go into default.
Yup this is what I meant exactly, thank you for clarifying it BS6.
@Revelate wrote:
@bs6054 wrote:I think what Revelate means is that charge off (when the issuer writes off the debt) is at the end of long process (late, default, collection, writeoff) and so any improvement in the figures, if not random, is due to policies implemented much earlier.
So if a bank today discovers the magic formula for users who will default, and don't issue those people any cards, the bank will still see charge offs for many months or years, as existing accounts go into default.
Yup this is what I meant exactly, thank you for clarifying it BS6.
Thank you both for clarifying.
But I think what you are saying applies for specific institutions, whereas the industry as a whole is displaying trends that are eye-opening for consumer debt overall. When delinquency and charge-off trends increase nationwide, it shows that consumers who were previously issued credit are strained. However, for an individual issuer it may be for many different reasons, including they relaxed their lending standards or they have severe concentrations in certain types of consumers that are experiencing trouble.
IIRC, credit card delinquencies and charge offs declined almost nationwide during 2012, which shows that consumers are generally faring better and cutting back on spending trends. This, to me, is great for putting together a continued economic recovery.
I think Snack that the majority of lenders go through "belt-tightening" at approximately the same time; at least I would suggest that the window for that time period is substantially smaller (measured in months, likely <6 for certain) whereas policies which effect chargeoff rate is a much larger window.
I agree it's good news for the economy, I simply think it's a lagging indicator by a non-trivial amount of time.
@Open123 wrote:
Apparently, credit card defaults and outstanding balances are decreasing.
In your view, is this a good thing? Good or bad for the economy, given that the US GDP is comprised of roughly 70% of consumer consumption?
PS - Notice Amex and Discover have far and away the lowest default rates and highest CC customer service satisfaction. Coincidence?
This ^^ is not a coincidence... Amex and Discover are known to be very conservative.
That being said, lower default rates and balances are a good thing, it means that card issuers will be able to free up cash to offer better sign up bonuses, lower APRs, and rewards to existing card members. The fact that balances are decreasing does not mean that consumers are spending less... it just means that they aren't relying on debt accumulation via credit cards to fund their spending.
Pay increases in the US are roughly 3%. I think people are using that 3% increase to bump up their levels of savings and pay off debt rather than take on new credit card debt. Car sales and home prices are rebounding... these are all signs of increasing stability.
When you consider that Fico uses credit card debt levels to signal a score drop (increase in default risk) then it would make sense that lower credit card debt = less defaults and more economic stability
FICO 8: 
Goal: Gardening!
Goal: Gardening!