U.S. credit card defaults hit record highs

Last month the U.S. credit card default rate hit a record high, as Americans continued to lose their jobs, indicating widespread financial distress among consumers, according to a Moody’s Investors Service report Wednesday.

Through its credit card charge-off index, Moody’s tracks and measures the number of credit card loans that banks do not expect reimbursement of. The index rose to an all-time high of 11.49 percent in August, up from 10.52 percent in July.

July’s statistics were actually lower than the previous month’s, the only drop in the charge-off rate seen during the past year. But the major jump last month stamped any hopes of a continuous decline in credit card losses.

Credit card defaults tend to follow the country’s unemployment rate, which rose in August to 9.7 percent, the highest in 26 years, according to Moody’s’ data, which predicts that unemployment will reach a peak next year at around 10 to 10.5 percent.

“We continue to call for a recovery of the credit card sector to begin once industry average charge-offs peak in mid-2010 between 12 percent and 13 percent,” Moody’s said in a report.

The Moody’s index reports that credit card delinquencies — payments more than 30 days late – also rose in August, to 5.80 percent.

“Even early-stage delinquencies rose, ending a trend of four consecutive months of improvement,” Moody’s said in a report.

Of the credit lenders who have reported record defaults, Bank of America Corp and Citigroup are among some of the largest card issuers. The two institutions also have the highest exposure to riskier credit card borrowers.

However, not all credit card lenders reported default rises. Capital One Financial Corp and American Express Co filed declines in charge-offs for August.