Moody's Investors Service on Wednesday said current trends indicate credit card companies have made it through the worst impacts of the recession.
According to Moody's Credit Card Indices, 10.71 percent of securitized credit card loans — card balances that are pooled and repackaged for investors — were written off as uncollectable in May. That was slightly higher than the 10.62 percent in May 2009, but down from 10.91 percent in April.
The firm expects charge-offs to start showing a year-over-year improvement in the next couple of months. The last time the year-over-year rate improved was in December 2006.
Moody's said cards with payments that are 30 to 69 days past due declined for a seventh-straight month, and is now close to the historically low range seen in 2006 and 2007. "The improvement in early stage delinquencies should translate to lower charge-off rates in the coming months," the company said.
The payment rate also improved, to 18.59 percent, more than 10 percent higher than a year ago. The payment rate measures the average amount of principal balance cardholders repay each month.
Moody's expects unemployment, an important factor in charge-offs, to plateau in the second half of the year at around 10.1 percent. Combined with the steady improvement in the delinquency rate and payment rate throughout the spring, Moody's said that supports its view that charge-offs have peaked.
Moody's Credit Card Indices measure the performance of the pools of credit card receivables, or outstanding balances, that back all publicly rated securities for at least one year.
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