On Sept. 8, Standard & Poor’s (S&P) announced that U.S. credit card losses declined in July 2009. However, at the same time it anticipates that the forecasted bad loans would soon resume their upward trend as unemployment continues to escalate.

The ratings agency’s credit card quality index, which measures credit card loans that banks expect would default, fell to 9.8% in July from a record high of 10.4% in June, aided by cautious spending by consumers. Furthermore, loan losses also decreased as consumers used more tax refunds to pay down debts.

However, the S&P warns that credit card losses will escalate again as the economy continues to shed thousands of jobs every month with unemployment rate at a 26-year high of 9.7% in August, 2009.

S&P expects credit card loss rates to rise to a range of 10.5% to 13% based on its assumption that unemployment rate would rise to the range of 10.4% to 12.7% and will remain in that range for the next 1-2 years. It also added that the losses could be further boosted by companies’ moves to increase fees and interest rates before limits on those charges come into effect in February 2010.

S&P’s credit card quality index tracks the performance of more than $491.1 billion of receivables held in trusts of rated U.S. credit card-backed securities. American Express Company (AXP), Bank of America Corporation (BAC), JPMorgan Chase & Co (JPM), Citigroup Inc. (C), Capital One Financial Corp. (COF) and Discover Financial Services (DFS) together share around 80% of the credit card industry.

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