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Capital One credit card defaults, delinquencies drop in April

A recent report by U.S. credit card company Capital One said that defaults on its cards dropped significantly in April.

In its latest filing, the company said its net charge-off rate - debts it believes it will never collect - fell to 9.68 percent. That was a drop of 1.19 percentage points from March and, according to a Reuters report, an indicator that consumers were able to pull themselves farther out of debt as the economy improves.

In addition, accounts that had been delinquent for 30 days, a potential indicator of future losses, dropped from 5.30 percent to 5.07 percent.

Capital One's international charge-off rates, which include loans in the UK and Canada, also declined from 9.40 percent to 8.60 percent, and the delinquency rate decreased slightly from 6.39 percent to 6.28 percent.

Even the company's charge-off and delinquency rates for auto loans decreased. Charge-offs fell from 2.10 percent in March to 1.75 percent in April, and delinquencies dropped from 7.58 percent to 7.13 percent.

However, the Capital One reports run counter to a recent trend in which consumer defaults in general dropped, but credit card defaults climbed, according to a recent report in the New York Times.

The report, which cited the most recent S&P/Experian index, said that in the three months prior to April, the default rate on credit card loans had climbed 9.14 percent, the highest rate since the index was started in 2004.

What the trend means, says David Blitzer, a managing director at S&P, is that consumers are more apt to pay the loans on their largest purchases, like mortgages and auto loans, rather than worry about credit card payments.

"In these areas, defaults bottomed out around the same time as the stock market in the first half of 2009," Blitzer told the Times. "Bank cards, on the other hand, continue to worsen and are at levels not seen in the history of these indices."

However, these defaults do not include loans that are overdue, but rather those that have fallen six months behind unless the debt has already been written off as irretrievable by the lender, or the borrower has filed for bankruptcy.

But since these indexes do not include April, as the new Capital One filings do, it may be a sign that consumers' ability to pay down their debt is strengthening with the economy.