Delinquency and default drops across the board in July

Many consumers may have had an easier time making their payments toward their credit card debt in July after an extended period of not being able to do so.

According to the latest Credit Card Index results from Fitch Ratings,the rate of accounts with delinquent credit card debt, both long- and short-term, declined significantly in the first month of the year’s second half. The company said that this was the result of all major lenders reporting drops in delinquency.

The percentage of consumers who were between30 and 60 days behind in paying down their credit card debt dropped for the fifth month in a row to a total of 5 percent, from the 5.13 percent observed the month prior. The rate of those whose credit card debt was more than 60 days delinquent also fell, in this case for the seventh consecutive month, to 3.76 percent from 3.86 percent in June. That total was a 19-month low. All major lenders that Fitch tracks, with the exception of Washington Mutual Master Note Trust, reported lower delinquency rates in July.

Similarly, Fitch said, defaults on credit card debt also fell in July, to 9.65 percent from 10.58 percent in June. This was the first time that rate dropped below 10 percent in 15 months, but was the second straight month it improved. However, the index – which measures the total rate of balances that lenders have to abandon as being irretrievable and strike from their records – is still more than 60 percent higher than the historical average of 5.88 percent. Fitch said Bank of America, Chase, Capital One, Citibank and Discover Financial all saw declines in their default rates.

“The trends are encouraging, but card defaults are still elevated historically and are expected to remain so,” said Michael Dean, the managing director for Fitch. “Unemployment will continue to weigh on consumer credit quality throughout the rest of this year and well into 2011.”

While these drops may indicate that consumers now have more money to put toward paying off their credit card debt, they could also signal that consumers – particularly those without regular employment – have been unable to get credit for so long that they have simply fallen out of the system.