The charge-off rate on credit cards is the percentage of credit card debt that lenders deem uncollectible and write off from their books after borrowers fail to make payments for an extended period, typically 180 days (or six months). Once a debt is charged off, it doesn’t mean the borrower is no longer responsible for the debt; it may be sold to collections agencies or pursued through other recovery efforts.

This rate just reached 4.7 percent. Rates above 4.5% preceded recessions in 3 of the last 4 times since tracking began in the 1980s. 

A rising charge-off rate suggests that more consumers are struggling to repay their debts, signaling potential economic stress or financial difficulties for households. High charge-off rates reduce lenders’ profitability as they directly represent losses. High charge-off rates can lead to stricter credit approval criteria, higher interest rates, or reduced credit limits, impacting consumers’ ability to access credit.

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