Credit card write-offs increase dramatically

Posted in 'Dealing with Debt' by Richard Catlin

26 January 2010

The amount of money that credit card issuers were forced to write-off as irrecoverable bad debt increased dramatically between June and September 2009, as the recession impacted heavily on consumers.

The Bank of England revealed that total written-off debts in the third quarter of 2009 came to £1.6 billion, compared to around £800 million in the first and second quarters of the year.

Some commentators have suggested that some banks may be selective about when they choose to write-off bad debts for accounting purposes, but in reality the surrounding process of calculating the extent of exposure to bad debt is driven by well established rules, and is carefully checked by external auditors. So it’s unlikely that the figures are anything but a true reflection of consumers’ ongoing struggle to keep up with repayments, especially on unsecured borrowing.

The last 18 months have seen many credit card issuers take steps to reduce their exposure to bad debt, with American Express going as far as offering some US customers $300 to close their accounts. In the UK, card issuers including Egg have terminated accounts of thousands of customers without incentive.

Although some credit card issuers took the decision to restrict applications to existing bank customers last year, the start of 2010 has seen some encouraging new signs in terms of lenders starting to recruit new customers.

With acceptance criteria still tight, it’s vital that you ensure your credit file is in good shape, and that you take care to choose who you apply to very carefully. You can instantly see which lenders are matched to your credit rating for free on checkmyfile, or for an even more accurate match, check your credit report and use that to assess who is most likely to say "yes".

Finally, if you are at all worried about meeting your own credit card repayments, you can find free, impartial guidance in our Debt Advice Centre.