Credit Cards in 2011 - Fall Back or Spring Forward?

Last week, the nation's top credit card issuers said the number of accounts that slipped into default fell to their lowest points of 2010 in December, and signs point to continued improvement in coming months. Five of the six biggest card issuers posted their lowest rates for charge-offs, or accounts written off as uncollectible.

While the rate of balances that companies are writing off remains high by historical standards, it has fallen consistently throughout the year. That is certainly good news.

Importantly, lender rates for payments late by 30 days or more also reached lows. That figure, also known as the delinquency rate, is considered an indicator for what's to come, which means charge-offs should be expected to keep falling through the first few months 2011.

Usually, credit quality on these portfolios worsens in the second half of the year, as consumers stop using tax refunds to pay down debt and start shopping for the holidays.

But uncertainty remains, as persistently high unemployment slows the rate of recovery at consumer lenders. Overall charge-off rates have fallen at most banks but remain high by historical standards. Loan portfolios are still shrinking, with consumers reluctant to take on new debt.

The wild card will be how the bank examiners will interpret the new financial regulations in their examinations this year. Until lenders get a comfort level on that reality, it could be another lean year for new loans and access to credit for borrowers with blemished credit.

We’ll be watching.