Credit card losses continue to mount in January

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The bad news about Americans with credit card trouble just keeps coming: Reuters reports that in January, card issuer Capital One saw charge-offs rise. The percentage of debt written off by the company as uncollectible rose to 10.41% last month, up from 10.14% in December.

Capital One is the third-largest issuer of Visa cards and the fifth-largest of MasterCards in the U.S., the article says, so it's safe to assume that Capital One's fortunes mirror that of the average American's finances. The percentage of accounts late in paying by 30 days or more was also up by a tiny fraction of a percent, while defaults on auto loans actually dropped slightly.

To get a sense of how serious this 10.41% is, the finance blog Calculated Risk offers a graph that illustrates the severity of the problem in stark terms. The graph in this post shows Capital One's charge-off rate going all the way back to January 2005 -- a full five years of data. Although the number's been rising pretty steadily for the past two years -- and sharply for the past year -- the level of uncollectible debt has never been this high.

The only time the rate even came close to what we've been seeing in recent months was toward the end of 2005, when Americans rushed to declare bankruptcy ahead of changes to bankruptcy law that now makes it more difficult to file for bankruptcy and walk away from your debts. Even during that "bankruptcy blitz," the level of charge-offs didn't reach the level it's at today.

This is undoubtedly disturbing news for credit card issuers, but it's also an issue for ordinary Americans. They're the ones who'll face the fallout of being unable to access credit for legitimate expenses or investments if card issuers further limit credit availability in the hopes of limiting their risk and losses.
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