The U.S. credit card charge-off rate rose slightly in July, but delinquencies fell again to an all-time low as consumers continued to demonstrate discipline in making on-time payments, Moody’s Investors Service said in a report released Friday.
Moody’s analysts earlier this month predicted that aberrations in individual card-issuers’ account-default rates would trigger an uptick, but the firm believes the charge-off rate will resume its downward trend later this year.
Despite the increase, “the well-entrenched (recent) record of improving delinquencies suggests that charge-offs will start falling again in the months ahead,” Moody’s said in the report.
The average credit card delinquency rate fell to 3.09%, down 10 basis points from 3.19% in June, marking the 21st consecutive month of declines and the second consecutive month the rate has hit an all-time low since Moody’s began tracking the data in 1989.
The average delinquency rate for all credit card accounts past due peaked at 6.23% in October 2009.
But the delinquency rate may be close to bottoming out, Moody’s suggests.
“We expect seasonal trends to persist in the coming months and result in flat to slightly higher early-stage delinquencies, even though the underlying credit of cardholders remains ... strong,” Moody’s analysts said in the report.
The early-stage delinquency rate measures the proportion of account balances that are 30 to 59 days past due as a percentage of an issuer’s total outstanding receivables.
The average charge-off rate in July rose five basis points to 6.09% from 6.04% in June, largely because of three large credit card issuers reporting higher levels of defaults, Moody’s said.
Citigroup Inc. and American Express Co. each posted slight increases in charge-offs, while Bank of America Corp.’s larger increase was a one-time effect caused by changing its policy on reporting accounts in default, the firm noted.
“Even excluding this technical change, the Bank of America trust, along with American Express and Citibank, had slightly higher charge-offs in July, as the effect of increased early-stage delinquencies in February for each trust ‘rolled through’ to charge-off status,” Moody’s said.
