Recent declines in credit card charge-offs should reverse course in 2010 as delinquencies climb higher and push charge-offs to their peaks by mid-year, according to Moody's Investors Service.
Earlier this week, Moody's reported that U.S. credit card charge-off levels eased in October for a second straight month from a record in August, while delinquencies rose for a third consecutive month. Payment rates also improved after two months of declines.
Delinquencies offer a glimpse of credit card issuers' potential losses and how much they may need to set aside in reserves. The rate rose to 6.12% in October from 5.97% in September and 5.79% in August, driven by increases in 60-day and 90-day delinquencies. So-called early stage delinquencies were little changed from September but up 11% from a year ago, Moody's said.
Moody's October credit card index showed a drop to 10.04% in the charge-off rate, below the 11.49% all-time high set in August. The charge-off rate measures those credit card account balances written off as uncollectable by credit card firms.
October's decline benefited from a large but technically driven improvement in Citibank's charge-off rate, said Moody's. It noted a change in bank policy that increased the amount of time between an account holder going bankrupt and when the account is deemed to be a charge-off.
Moody's still expects the charge-off rate to turn up again and to peak at 12% to 13% in mid-2010. The payment rate, or percentage of the principal balance cardholders repay each month, rose to 17.3% in October after falling to 16.8% in September and 16.9% in August.