Canadian Treasurer

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 the year.

"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 balance.

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 principal balance.

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 expiring.

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



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