The average charge-off rate on U.S. consumer credit cards inched upward in February, ending a streak of five consecutive months of declines. But the uptick is the result of “seasonal patterns” and is unlikely to affect the general trend of improving card-portfolio health, according to Moody’s Investors Service.
The charge-off rate on outstanding credit card receivables rose to 7.56%, up 11 basis points from 7.45% in January but down 352 basis points from 11.08% in February 2010, Moody’s said in a report released Tuesday.
Higher delinquencies on consumer credit card accounts in September drove the recent rise in chargeoffs, but the overall charge-off rate should continue to improve this year, Moody’s analysts said.
“We expect the charge-off rate to resume its pace of steady declines in the spring,” Moody’s analysts wrote in a report accompanying the February data. Moody’s says it is sticking with its previous forecast that the average card charge-off rate will dip below 7% during the second quarter of this year.
Several large credit card issuers, including JPMorgan Chase & Co., Citigroup Inc. and American Express Co., in February reported slightly higher charge-off rates among their credit card receivables, which was “not unexpected” given the uptick in delinquent accounts the issuers reported last fall, Jeffrey Hibbs, a Moody’s analyst, tells PaymentsSource, a Collections & Credit Risk sister publication.
“We’re seeing the roll through now of early-stage delinquencies in September, but the more significant fact is that since last fall, delinquencies have improved, which bodes well for chargeoffs continuing to improve later this year,” Hibbs says. “None of the data we’re seeing are indicative of chargeoffs reversing direction and beginning to rise again broadly.”
The delinquency rate in February for accounts at least 30 days past due was 1.02%, down 41 basis points from 1.43% a year earlier, while delinquencies on accounts at least 90 days past due was 2.2%, down 100 basis points from 3.3%, Moody’s says.
“While delinquency rates may go up and down slightly this year, the overall trend is toward dramatic improvement in portfolio health as more accountholders keep up with payments and issuers maintain stricter discipline on underwriting,” Hibbs says.
