The consumer credit card charge-off rate declined for the second consecutive month in May, increasing the likelihood that charge-off rates soon will dip below their year-ago levels, Moody’s Investors Services said in a June 22 report.
The average charge-off rate in May fell 20 basis points, to 10.71% from 10.91 in April. The May charge-off rate is just nine basis points above the average charge-off rate from a year earlier.
Moody’s analysts expect that within “the next couple of months,” the average charge-off rate will fall below levels from a year earlier. The last time the credit card charge-off rates improved over year-ago levels was December 2006, Moody’s said.
The delinquency rate on all card accounts more than 30 days past due in May fell for the seventh consecutive month, to 5.26%, down 28 basis points from 5.54% in April, marking the lowest overall delinquency rate since November 2008.
Assuming unemployment rates stabilize at 10.1% during the second half of this year, Moody’s expects to see a continuation of improving trends in both credit card charge-offs and delinquencies.
“This (unemployment-rate forecast) ... reinforces our view that credit card charge-offs have passed their peak levels for this credit cycle,” Moody’s said, referring to the economic downturn that began in late 2008.
