Credit card defaults dropped so sharply this year that banks may pick up their pace of opening new accounts in 2012.
While it's not likely that card companies will open the floodgates and hand out cards as readily as they did four or five years ago, potential customers with moderate credit scores should find cards easier to obtain in the coming year. That's thanks in part to the strides that existing card holders have made in making payments on time.
The top six credit card issuers reported data Thursday for November defaults and late payments, and the trends point to the restoration of normal patterns after huge spikes resulting from the economic crisis, according to Moody's Investors Service.
Under normal patterns, late payments tick up during the end of the year and _ especially _ the first few months of each new year, then shift down as people pay off holiday purchases and receive a cash infusion from income tax refunds.
Some credit card issuers companies, notably Citibank and Capital One Financial Corp., reported increases in defaults for November. But the rates are still near historic lows. And companies like American Express Co. and Discover Financial Services said their default rates remain well below their traditional levels.
Moody's analyst Jeff Hibbs said defaults, which are known as charge-offs in the industry, are likely to keep falling.
"We certainly think there's more room to run in terms of the charge-off rate to go lower," he said.
He expects the industrywide rate to drop below 4 percent of outstanding balances in 2012. Including November data, the rate now is about 5.2 percent on an annualized basis. That's a vast improvement from a peak of 10.44 percent reported by the Federal Reserve for the second quarter of 2010.
One of the reasons people are doing so well paying their bills on time is that the massive defaults by card customers in recent years _ Moody's pegs the total balances written off since the recession began at about $75 billion _ mean that fewer people have cards now. Credit reporting agency TransUnion estimated a year ago that more than 8 million people had left the credit card market since the Great Recession began.
That left mainly more affluent customers in the market, and they are better able to make payments.
But TransUnion has spotted a loosening in the credit card market. It said last month that about a quarter-million new cards were issued in June to September to consumers who had had some trouble making payments in the past, as indicated by their moderate credit scores. Card companies need to find new customers, in order to grow, after they spent much of the past two years battling for the same high-credit score, high-spending customers.
Hibbs expects that trend to pick up during 2012.
In turn, there likely will be an uptick in late payments, which also have reached historic lows, as some of the returning borrowers revert to prior habits and are unable to make payments. But there are signs that card users are changing their behavior, using cards more often but paying balances in full each month. Discover Financial Services on Thursday was the latest card company to report an increase in full payments each month.
That reflects both increased interest in the rewards that card companies offer and consumers continuing to manage their money more carefully and cut their debt.
Card companies will keep a close eye on the metrics and proceed slowly in issuing new credit.
Discover Chief Operating Officer Roger Hochschild said caution is key, with unemployment still stubbornly high and the economic recovery still uncertain. The company on Thursday posted fiscal fourth-quarter results that included maintenance of a relatively high level of reserves to cover uncollected bills, despite its record-low charge offs.