Credit card charge-offs rose to a record high in August, while the principal payment rate fell, underscoring continuing economic pressure on consumers, according to a new report by Moody's Investors Service. Moody's this week said its Credit Card Index, which measures the average charge-off rate on outstanding bankcard receivables, reached 11.49% in August, up 467 basis points from 6.82% a year ago. The delinquency rate for cards at least 30 days past due rose 120 basis points, to 5.8% of outstanding receivables from 4.6% a year earlier. Moody's economists continue to expect a recovery for the credit card sector to occur sometime after average credit card charge-off rates peak at between 12% and 13% around the middle of next year. The principal credit card payment rate in August fell to 16.9%, down 50 basis points from 17.4% a year earlier as part of an ongoing trend. The payment rate measures the average amount of principal cardholders repay each month, measured as a percentage of total outstanding principal balance. The average annual principal payment rate, which never exceeded 15.3% from 1990 through 2003, rose through 2008 to 18.03% as expanding home values and home equity lines of credit provided ready funds for consumers to repay credit card debt. Moody's expects "weakness" in the principal payment rate to persist through next year as consumer purchase volume declines and more credit cardholders pay off their balances in full each month.

Subscribe Now

Authoritative analysis and perspective for every segment of the payments industry

14-Day Free Trial

Authoritative analysis and perspective for every segment of the industry