| United States (U.S.) credit card issuers attest to the fact that the economy has some underlying impact on credit card charge-off rates. Understanding this economic impact can lead to decisions that are more effective by credit card issuers regarding risk mitigation and business strategy. However, the challenge is identifying which economic indicators, covering all aspects of the economy, have an influence on consumer credit card charge-off rates. With the use of time-series regression, this paper presents a model that identifies economic variables that have a significant relationship with the consumer credit card charge-off rate. Data from the first quarter of 1990 to the fourth quarter of 2009 became the focus when modeling the consumer credit card charge-off rate. The expansion of a baseline model, consisting of indicators found through research, occurs with the addition of new economic variables. The expanded econometric model found six economic variables to have a significant relationship with the consumer credit card charge-off rate. These variables cover four major aspects of the economy: consumption, production, financial, and housing. To understand how the economy influences the credit card business, card issuers should evaluate all aspects of the economic system that measure the country's economic activity. Although some variables showed varying levels of significance in favorable and unfavorable economic periods, the overall model was a good fit. Credit card companies can use this new information to understand the economic impact and make effective decisions, specifically regarding the mitigation of future credit losses and the development of new business strategies. |
