Early data show consumers survived the holidays with less financial distress than in previous few years, and the average U.S. credit card charge-off rate for most major issuers is on track to decline for at least the next few months, according to analysts at Moody’s Investors Service.
Moody’s plans to announce the average March charge-off rate for the credit card industry and the average delinquency rates for that month later this week, according to Jeffrey Hibbs, a Moody’s analyst.
The average credit card charge-off rate, which ticked up in February to 7.56% after a five-month streak of declines, for March is “likely to go lower than 7.5%,” Hibbs tells PaymentsSource, a Collections & Credit Risk sister publication.
The most significant clue to overall improving consumer credit is that the delinquency rate on accounts 30 to 59 days past due, a prime indicator of card-portfolio health, also fell for most issuers in March, which was not the case for March over the past few years, Hibbs says.
“During the past three years, as we endured the recession and financial crisis, credit card delinquency rates notably ticked up during March when post-holiday spending setbacks rolled into delinquency files,” Hibbs says. “That’s not the case this year, which indicates to us that another negative factor in the recent bad credit cycle has been broken.”
Moody’s is sticking with its forecast that the average U.S. charge-off rate will dip below 7% at some point during the second quarter. However, it is impossible to know when charge-off rates, which climbed to a recent peak of 11.5% in early 2010, will bottom out, Hibbs says.
“As long as we continue to see improving credit quality and strong payment rates among cardholders, the charge-off rate will continue to decline, ... whereas a rise in early-stage delinquency rates would indicate we are likely to see charge-offs begin to rise again,” he says.
