The average charge-off rate on U.S. consumer credit cards fell in March, resuming its general trend of improvement after a slight uptick in February, and account-delinquencies also declined, according to new data Moody’s Investors Service released April 25.
The charge-off rate on outstanding credit card receivables fell to 7.35%, down 21 basis points from 7.56% in February and down 386 basis points from the highest point reached last year of 11.21% in March.
The latest data suggest a return to the “steady trend of improvement” in credit card charge-offs, Moody’s said in its monthly Credit Card Index report.
The firm reaffirmed its forecast that the average charge-off rate soon will drop further. “Our expectation for the charge-off rate index to break below 7% in the second quarter at this point appears inevitable,” Moody’s wrote.
Worries persist, however, that overall credit card receivables continue to shrink as issuers eliminate bad loans from their portfolios and they have not offset those losses with substantial numbers of new accounts, Moody’s said. As the effect of lower-quality accounts purged from portfolios diminishes, “further improvement will depend on the employment trends and the quality of new (credit card account) underwriting,” the firm said.
Moody’s expects new-account originations to begin to climb again “later in the year,” but there will likely be a significant lag of “at least several quarters” before the potential effect of such expanded account-receivables is observed, the firm noted.
The average delinquency rate on accounts past due also fell in March to 3.79%, 23 basis points below 4.02% in February and 200 basis points below the average delinquency rate a year earlier. The latest average delinquency rate also marks the first time it has fallen below 4% since August 2007, Moody’s said.
The early-stage delinquency rate on accounts 30 to 59 days overdue in March fell four basis points to 0.98% from 1.02% in February, a departure from the past three years during which early-stage delinquencies rose in March. The data suggest that consumers survived the holidays in better financial shape than in recent years.
Moody’s noted that March’s early-stage credit card delinquency rate also was the lowest the firm has recorded since early 2000 when Moody’s began to track the measurement.
