The credit card delinquency rate dropped to its lowest level in five years, according to a report by Moody's Investors Services.

The report shows that consumer credit quality, which is measured in terms of late payments and bad-loan writeoffs, continued to improve in the third quarter of 1994.

The late payment rate dropped to 4.35% in September, from 5.27% in September 1993. And the bad-loan writeoff rate -- account balances written off as uncollectible as a percentage of outstanding balances -- fell to 3.83% in September from 4.65% a year earlier.

Edward Bankole, the Moody's analyst who tracks these indexes each month, attributes the positive declines to the current economic recovery, but, he cautions that the improvement could be reversed if the economy sours.

Specifically, Mr. Bankole is concerned about the rapid growth in credit card loans.

In the United States, outstanding balances for Visa, MasterCard, and Discover were up in September by about 25%, to $254 billion.

In fact, Moody's cites Federal Reserve data showing that revolving debt, primarily credit card loans, has risen faster in recent years than other forms of consumer installment debt, such as automobile loans.

While the most recent Moody's data indicate that consumer credit quality is improving, Mr. Bankole pointed to troubling trends, such as the increasing percentage of low-income households with credit card debt, the rising number of credit cards per average cardholder, and the rising concentration of various consumer debt in credit card loans.

Mr. Bankole believes that these developments, due to the intense competition in the industry, in the long term could weaken the quality of consumer credit.

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