Credit Card Delinquencies Hit All-Time Low in July, Moody's Says

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 pay their credit card bills on time, Moody's Investors Service said in a report released on Friday.

Moody's analysts earlier this month predicted that aberrations in individual card-issuers' charge-off rates would trigger an uptick generally, but the firm believes the overall loss rate will resume its downward trend later this year (see related story).

Delinquency rates are an early warning that consumers are falling behind on their credit card payments and may eventually charge off the account. Credit card losses surged during the financial crisis, as consumers lost their jobs and stopped paying their bills, but the new lows in delinquency rates indicate that U.S. lenders do not have to worry about another spike in charge-offs anytime soon.

"The well-entrenched (recent) record of improving delinquencies suggests that charge-offs will start falling again in the months ahead," Moody's analysts 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 slightly higher loss rates, 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 an accounting change, according to Moody's.

But the firm said the slightly higher losses had been anticipated, after the banks upticks in higher early-stage delinquencies in February.