Credit card charge-off rates crept upward in early 2008

Percentage of charge-off rates on credit card loans for all commercial banks: 2000 to Q1 2008. Source: Federal Reserve Board

Banks continued to charge off uncollectable credit card debts during the first three months of 2008 at rates slightly higher than those seen in 2007 and 2006, according to the latest figures released Wednesday by the Federal Reserve Board.

It's no surprise given the credit crunch and economic slowdown. The official first-quarter 2008 charge-off rate of 4.70 percent is up from 4.15 percent the previous quarter and from 3.93 percent during the same quarter a year ago.

Charge-offs are the value of uncollected credit card balances removed from the books and charged against a bank's loss reserves. The rate is the amount of charge-offs divided by the average outstanding credit card balances owed to the issuer.

Rising charge-offs are a reflection of the difficulties some consumers may face these days in paying their credit card bills. As gasoline and food prices soar, some families are struggling to pay basic living expenses.

Despite the recent increases in charge-offs, industry observers note current levels are not as high as Q4 2005 (when the rate hit 6.05 percent), Q4 2003 (when the rate was 6.07) or Q1 2002 (when the rate reach a high of 7.85 percent).

See related: "Credit card charge offs rise slightly at end of '07"