After a two-month run of improvement, November charge-offs on credit cards rose about half a percentage point to 10.56%, according to Moody's Investors Service in its latest Credit Card Indices report. The delinquency rate for November also rose, to 6.2%.
Trends in the seasonal delinquency rate indicate it may continue to rise in the next few months. These trends also support Moody's ongoing view that the charge-off rate will peak at between 12% and 13% in mid-2010. Moody's notes that early stage delinquencies declined in November to 1.6%.
"While this improvement is somewhat encouraging, the measure tends to experience some monthly volatility and we would not interpret the single month of improvement as evidence of any turn in consumer credit trends," says Jeffrey Hibbs, an analyst at Moody's.
The charge-off rate measures those credit card account balances written off as uncollectable as an annualized percentage of total outstanding principal balance. The delinquency rate measures the proportion of account balances for which a monthly payment is more than 30 days late as a percent of total outstanding principal balance. They have moved steadily higher over the last four months.
The principal payment rate and the yield on securitized credit card obligations, in turn, both weakened somewhat in November. The payment rate fell 89 basis points in November to 16.42%. Moody's attributes some of the decline to November being a shorter month, and expects a rebound in the payment rate in December. The payment rate measures the average amount of principal that cardholders repay each month, measured as a percentage of total outstanding principal balance. Yields on credit cards slipped 15 basis points in November to 21.09%, which is still close to an all-time high.