Credit card defaults keep rising, report says
Inability of cardholders to pay up could be due to recent subprime mortgage market crisis, newspaper says.
NEW YORK (CNNMoney.com) -- American consumers are defaulting on their credit cards at a sharply higher rate compared to last year, in what could be another consequence of the recent subprime mortgage market crisis, according to a report published Tuesday.
In addition, late payments are also up, cardholders are showing signs they are less willing to pay and credit card companies have written off 30 percent more payments during the first half of this year versus a year ago, the Financial Times reported.
The credit rating agency Moody's told the paper the problem could be due to the property market slowdown and fewer homeowners opting not to refinance their residences.
"The combination of higher interest rates and a softer real estate market diminished the attractiveness of mortgage refinancings in which many borrowers reduced their more expensive credit card debt by drawing on the equity in their home," Moody's told the paper.
At the same time, Moody's said that the people defaulting on their credit cards may not be the same individuals defaulting on their subprime home loans. The agency cited stricter underwriting standards in the credit card industry and the fact that borrowers with little or no equity in their homes may choose to default on their residence before giving up their credit card, according to the paper.