Average credit card charge-offs in July declined sharply, falling below 10% of outstanding receivables for the first time since April 2009, Moody’s Investors Service announced Aug. 25.
The charge-off rate for July fell to 9.3%, 98 basis points below 10.28 in June and 220 basis points below the peak of 11.5% in August 2009, the ratings agency says.
July’s charge-off rate marks the third-largest monthly decline since Moody’s began tracking average credit card charge-off rates in 1990, Moody’s says.
Moody’s attributes some 15 basis points of July’s decline in charge-offs to a technical change in the method Citigroup Inc. uses to calculate its credit card charge-offs. The change resulted in an overstatement of previous months’ charge-offs.
“The rest of the decline in July is due to overall credit improvement, part of the continuing trend of improving delinquency rates as consumers continue to show an ability to repay credit card debts,” Jeffrey Hibbs, a Moody’s analyst, tells PaymentsSource.
The delinquency rate on credit card accounts at least 60 days past due fell to 4.93% in July, down 15 basis points from 5.08% in June.
The combination of a slowdown in new defaults from consumers financially squeezed during the recession plus tighter credit card underwriting standards have caused charge-off rates to improve, Moody’s says.
“Issuers have been purging weaker credit accounts from their portfolios for more than two years ago, and their credit-origination standards are much higher today, comparatively speaking, that they were at the beginning of the recession,” William Black, Moody’s managing director, tells PaymentsSource.
Moody’s predicts credit card charge-offs will continue to improve throughout the remainder of this year, assuming unemployment peaks as expected near 10% later this year or in early 2011.
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