The U.S. average credit card charge-off rate declined in August, resuming the general downward trend of the past two years following a slight uptick in July, according to a new Moody’s Investors Service report.
The charge-off rate during August declined 7 basis points to 6.02% from 6.09% a month earlier as fewer consumers defaulted on their card loans, the firm said.
The latest results reverse a “technical spike” in the average charge-off rate during July caused primarily by a change in Bank of America Corp.’s policy for recognizing credit card charge-offs, Moody’s said.
The average U.S. credit card delinquency rate during August reached 3.04%, down 5 basis points from 3.09% a month earlier, as fewer cardholders fell behind on credit card payments. The latest delinquency-rate figure, measuring the number of cardholders whose accounts are at least 30 days past due, marks an all-time low for the third consecutive month, Moody’s said.
Credit card delinquencies peaked at 6.23% in October 2009, Moody’s data show.
“The well-entrenched trend of improving delinquencies suggests that charge-offs have plenty of momentum to continue falling in the months ahead,” Moody’s analysts wrote in the report, adding that the firm is sticking to a forecast it published earlier this year predicting that the average charge-off rate will fall below 4% by the end of 2012.
More cardholders are paying off their account balances, which is contributing to improved credit quality within card portfolios, Moody’s data suggest.
“Historically low delinquencies and high payment rates reflect the improved borrower mix in credit card trusts today as weak borrowers have charged off at record levels in the recent recession, and (issuers) have added few new accounts,” Moody’s said.
