March 8, 2011
Moody's: U.S. credit card charge-offs lower in January, more improvement
NEW YORK--Charge-offs on U.S. credit cards fell for a
fifth consecutive month in January to 7.45%, according to Moody's Credit
Card Index, down from 8.03% in December. Moody's expects the charge-off rate
to increase for the next month or two, before resuming a steady pace of
decline that leads it to fall below the 7% mark during the second quarter of
"Every indication points to more room for further declines in the
charge-off rate in 2011," says Jeffrey Hibbs, Moody's Assistant Vice
President. "For the second straight month, in January each of the largest
credit card trusts posted monthly improvement."
The charge-off rate index is now more than one-third lower than its August
2009 monthly peak of 11.50%.
The charge-off rate measures those credit card account balances written off
as uncollectible as an annualized percentage of total outstanding principal
One important indication that charge-offs will fall below 7% is the recent
decline in early-stage delinquencies, which fell again in January to a new
record low of 1.01%.
Overall, the delinquency rate fell to 4.10% for January, its lowest level
since September 2007 and the fifteenth consecutive month of decline.
The delinquency rate measures the proportion of account balances for which a
monthly payment is more than 30 days late as a percent of total outstanding
Also in December, the yield index dropped 123 basis points to 20.52%, a
decline Moody's attributes in part to principal discounts that have been
Yield is the annualized percentage of income, primarily finance charges and
fees, collected during the month as a percent of total loans.
The sharp decline in yield helped to pull back the excess spread index off
the all-time high set last month.
During January the excess spread index moved back 71 basis points to 10.11%.
Still at historically high levels, the January figure marks the fifth month
that excess spread has been higher than 10%.
Excess spread is a proxy for the profitability of a card program, and
generally represents the yield (i.e., income) of a trust, less expenses such
as charge-offs, coupon, and servicing.
The report, "Moody's: Credit card charge-offs lower in January, More
Improvement Ahead in 2011," is available on moodys.com.