The credit card charge-off rate rose again in March, reaching a point that is “at or near a peak,” Moody’s Investors Service said in a report this week.
Charge-offs reached 11.21% of overall credit card outstandings in March, up 13 basis points from 11.08% in February and up 191 basis points from 9.3% during March 2009. The average charge-off rate for the three-month period ended March 31 was 11.12%, the highest quarterly rate since Moody’s began tracking credit card charge-offs in April 1989.
The delinquency rate for card accounts more than 30 days overdue fell in March for the fifth consecutive month, to 5.79%, a trend Moody’s expects to continue.
“We expect seasonal trends and a nascent consumer recovery to result in lower delinquency rates, which should lead to lower charge-off rates in the months ahead,” Moody’s said in an April 21 report.
Credit card accountholders are repaying outstanding balances at a faster rate than last year, the firm also noted. “Cardholder payment rates continued to improve [in March], another positive indicator of cardholders’ means to repay balances,” the report stated.
Moody’s expects unemployment rates to plateau during the second half of this year at between 10% and 10.5%.
Given its forecast and the expected improving trajectory for delinquencies, Moody’s said it believes the first quarter of 2010 “marks the peak of the quarterly charge-off rate” for the current economic cycle, which began in fall 2008 when charge-offs rose sharply and continued rising.
Moody’s expects “the possibility of the monthly rate peaking either this month or next.”
