Credit Card Processing Blog

Just when we thought that the credit card delinquency rate in the U.S. may have bottomed out, it resumed its fall in December, according to the latest data from Moody’s Credit Card Indices. The late payments rate had remained virtually unchanged in the previous four months. Much more expected was the reported fall in the rate measuring the U.S. credit card defaults, as its uptick in November was widely considered to be a one-off aberration from the long-term downward trend.

The six largest U.S. card issuers were evenly split in their charge-off results for December, with Bank of America, Discover and Chase reporting increases, while Citigroup, Capital One and American Express registered decreases in the month. All of them, however, reported lower delinquency rates.

Credit Card Charge-offs Down 0.34%

The fall in credit card defaults in December was widely expected. Moody’s has for a long time predicted that charge-offs will fall below four percent before the end of this year. The present level – 5.04 percent – is 2.99 percent lower than the rate measured by Moody’s at the end of 2010, a decline of 37.24 percent – the sharpest year-on-year drop in history.

The charge-off (or default) rate represents the ratio of accounts with outstanding credit card balances that card issuers no longer expect to be repaid by their cardholders, with respect to the total number of open accounts. Charged-off accounts are consequently written off of the issuers’ accounting books as losses, typically at 180 days after the last payment on the account.

Late Payments Fall to 2.91% – a New All-Time Low

Moody’s credit card delinquency rate had remained virtually flat from September through November of last year, having previously fallen for 22 months in a row. It looked as if it may have reached the bottom, but evidently there was still room to fall. The late payments rate decreased by 0.12 percent and is under three percent for the first time ever.

Moody’s headline delinquency rate represents the ratio of credit card accounts on which payments are late by 30 days or more to the total number of open accounts. The agency’s “early-stage delinquency rate,” which keeps track of payments late by 30 – 59 days, also fell in December – by six basis points to 0.80 percent. This is also a record.

These extremely low and falling delinquency rates are the reason charge-offs are expected to decrease by more than a percentage point from their present level by the end of this year. This is a fairly safe prediction, considering that the charge-off rate is a trailing indicator for the delinquency one.

All Top U.S. Issuers Report Lower Delinquencies

As if making a statement, each of the six biggest U.S. credit card issuers reported a lower delinquency rate in December. They were, however, split on defaults, which is a much more customary occurrence. Here is what each one of them reported:

Here is how the issuers’ December 2011 figures compare to the post-Lehman record-highs in each category:

American Express continues to lead the pack in absolute declines, as well as in biggest percentage drops in both categories.

The Takeaway

So the December delinquency numbers caught many of us by surprise. Yet, I just can’t see them falling much further, if at all. As it is, the late payments rate for each of the top issuers is below three percent and for half of them it is under two-and-a half percent. But even if the aggregate delinquency rate rises slightly in the coming months, it will almost certainly bring the charge-off rate down to under four percent sooner than Moody’s expects.

Another good news, perhaps the most important one to come out of Moody’s report, was that the rate at which Americans were repaying their outstanding credit card balances in December – the monthly payment rate (MPR) – had spiked by more than one percent from the previous month’s level. The MPR was reported at 21.58 percent, up from 20.56 percent in November, and is only 0.33 percent lower than the all-time record of 21.91 percent set in August of last year. Historically, the average has hovered in the mid-teens.

What makes all these numbers even more impressive is that the Federal Reserve reported a huge spike in credit card use in November, which was also the third consecutive monthly increase. So even as Americans are beginning to use their credit cards more freely once again, they seem to be doing so within their means. I hope this turns out to be the beginning of a long-term trend.

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Americans pushed the credit card delinquency rate down to a new record in November, following three consecutive months in which the late payment rate was unchanged, we learn from Moody’s Credit Card Indices. The credit ratings agency also reports that the charge-off rate rose by 17 basis points from its October level, but it expects this to be a one-off aberration from the long-run downward trend and anyway, the November rate is still lower by more than three percent compared to the same time a year ago.

The six biggest U.S. card issuers reported mixed results for their credit card portfolios in November. Four of them – Bank of America, Chase, Discover and Citigroup – had lower charge-off rates for the month and three of them – Bank of America, Chase and Discover – reported lower delinquencies.

Credit Card Charge-offs up 0.17%

The rise in defaults by 0.17 percent in November followed three consecutive monthly decreases that caused the rate to plunge to 5.21 percent in October from 6.09 percent in July. However, Jeffrey Hibbs, Moody’s Assistant Vice President, is not surprised:

The increase in November is not unexpected, as weaker charge-off rate performance during the month is consistent with seasonal patterns.

Hibbs still expects defaults to resume their decline in 2012 and fall below the four percent threshold sometime next year.

The charge-off rate (default rate) measures the proportion of outstanding credit card balances that issuers no longer expect to be repaid by cardholders and write off (or charge off) of their accounts as losses, typically 180 days after posting the last payment on the account.

Credit Card Delinquencies Fall to 3.03% – an All-Time Low

Moody’s credit card delinquency rate resumed its downward trajectory in November. It only fell by a single basis point, to 3.03 percent, but that was enough to mark a new record. The agency’s late payment rate had stuck at 3.04 percent in each of the three preceding months, having previously fallen for 22 consecutive months.

Moody’s headline delinquency rate measures the ratio of credit card accounts on which payments are late by 30 days or more. The agency also publishes an “early-stage delinquency rate,” which tracks payments late by 30 – 59 days. This rate was unchanged from October and is at 0.86 percent, also a record.

These extremely low and falling delinquency rates are the reason Hibbs believes that charge-offs will decrease by more than a percentage point from their current level by the end of next year. This is a fairly safe prediction, considering that the default rate is a trailing indicator for the delinquency one.

Top U.S. Issuers Report Mixed Results on Charge-offs, Delinquencies

The six biggest U.S. credit card issuers were once again split in their November charge-off and delinquency results. Here is what each of them reported:

Here is how the issuers’ November figures compare to the post-Lehman record-highs:

So American Express continues to lead its peers in both absolute declines, as well as in biggest percentage drops in both categories.

The Takeaway

The marginally lower November delinquencies, following three consecutive months of no change at all, may indeed indicate that the long period of falling rates of overdue credit card payments has come to an end. Defaults, on the other hand, though rising for the month, will most probably resume their decline in December or January and continue to fall for most of 2012 and will do so for several months after the delinquencies have stopped decreasing.

On the other hand, the rate at which Americans are repaying their outstanding credit card balances at the end of each monthly cycle – the monthly payment rate (MPR) – is beginning to slide. Although still very high by historical standards – 20.56 percent in November, compared to a historical average in the mid-teens – the MPR is down by 35 basis points from October and is lower by 1.35 percent from the all-time record of 21.91 percent reached in August of this year.

Unsurprisingly, the fall in the MPR coincides with a rise in the aggregate amount of outstanding revolving credit – mostly credit card debt. Federal Reserve data show a 0.6 percent increase in revolving credit for both September and October, the last two months for which data are available. It is all but certain that this trend will continue at least through the holiday months and it will be very interesting to see how the MPR will respond.

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Learn how to accept credit and debit cards at the lowest processing costs. The Payment Card Acceptance kit contains a video and an e-book:

• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).
• E-Book – Payment Card Acceptance Guide (19 pages).

A record-high percentage of Americans kept making their credit card payments on time in October, keeping the aggregate delinquency rate unchanged for the third consecutive month and at the lowest level in more than four years, according to the latest data from Moody’s, a credit ratings agency. The charge-off rate fell by six basis points from its September level and is now about 3.5 percent lower than the rate recorded at the same time a year ago.

The six largest U.S. card issuers reported mixed data for their credit card portfolios in October. Two of them – Bank of America and Citigroup – had lower default rates for the month and the issuers were also split in the delinquency category, with BofA, Discover, Citi and American Express recording decreases.

Credit Card Charge-offs Down 0.06%

The decrease in defaults by 0.06 percent in October, although not nearly as impressive as September’s 0.75 percent decline, was nevertheless noteworthy for continuing a pattern that began immediately following the Lehman collapse in 2008. According to Jeffrey Hibbs, a Moody’s Assistant Vice President:

Earlier in the decade, sharp charge-off improvements in September were typically followed by increases in October, a pattern that has been broken now for the past three years as charge-offs continue their steady descent.

Charge-offs (or defaults) are overdue credit card balances that lenders no longer expect to be repaid and write off (charge off) of their accounting books as losses, usually 180 days after receiving the last payment on the account.

Moody’s expects defaults to continue to decline throughout 2012, with the charge-off rate eventually falling below four percent.

Credit Card Delinquencies Flat at 3.04 Percent

Having previously fallen for 22 months in a row, Moody’s aggregate credit card delinquency rate for October remained unchanged at 3.04 percent for a third consecutive month. That is still about a third below the rate measured a year ago.

Moody’s headline delinquency rate measures the proportion of credit card accounts for which payments are late by at least 30 days. The early-stage delinquency rate – payments overdue by 30 – 59 days – fell by a single basis point in October, to 0.86 percent, which is also a record territory, as Hibbs tells us:

With the early-stage delinquency rate index hovering near its all-time low, the pace of further improvement is likely to be muted. However looking ahead, the calendar is moving into a period that suggests seasonal declines in the early-stage delinquency rate in the coming months.

Isn’t it a bit counterintuitive that the holiday shopping season, when we spend more than at any other time of the year, would produce a more disciplined debt repayment pattern?

Biggest Issuers’ Reports Mixed on Charge-offs, Delinquencies

The six largest U.S. credit card issuers were almost evenly split in their October charge-off and delinquency results. Here is how each of them fared:

Here is how the issuers’ latest measurements compare to the post-Lehman record-highs:

As you see, American Express leads its peers in both absolute numbers, as well as in biggest percentage decreases in both categories.

The Takeaway

The third consecutive month of flat delinquencies gives us the strongest indication yet that the decline in the rate of overdue credit card payments may have come to an end. Charge-offs, on the other hand, are still declining and will continue to do so for several months after the delinquencies have flattened out, which is why Moody’s expects them to fall below 4 percent sometime next year.

Additionally, the latest Federal Reserve data show that credit card debt in the U.S. is at the lowest level in more than seven years. Moreover, whatever it is they do spend on credit cards, Americans are much quicker to pay back than they have historically been. The October monthly payment rate (MPR), which gives us the proportion of outstanding credit card balances consumers are repaying at the end of each month, is 20.91 percent, according to Moody’s. Although lower by a percentage point from the August peak, the October MPR is still very high compared to a historical average in the mid-teens.

As we keep saying, there is every reason to expect that Americans will continue to be cautious with their credit cards for as long as the economy remains in its current fix and unemployment is at stratospheric levels.

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Learn how to accept credit and debit cards at the lowest processing costs. The Payment Card Acceptance kit contains a video and an e-book:

• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).
• E-Book – Payment Card Acceptance Guide (19 pages).

At the end of the third quarter of this year Americans were not as timely in repaying their credit card debt as they were in the preceding three months when they did so at a higher rate than at any time since 1994, we learn from the latest data released by TransUnion, one of the three national credit reporting bureaus. Yet, the aggregate U.S. credit card delinquency rate remains in record-low territory.

Having fallen to its lowest level in more than a decade in the first quarter, the average amount of credit card debt owed by Americans rose for a second quarter in a row, this time by 1.34 percent, following a 0.43 percent increase in the three month period ending in June, TransUnion tells us.

Credit Card Delinquency Rate Up to 0.71%

TransUnion’s headline news is that the U.S. credit card delinquency rate rose to 0.71 percent in the third quarter of this year, up 18.33 percent from the previous quarter (0.60 percent), but down 14.45 percent on a year-over-year basis. While this is the first quarterly increase in two years, it is still the second-lowest delinquency rate in 16 years, TransUnion tells us.

TransUnion’s quarterly reports are more valuable than the monthly data we receive from the credit card issuers, because they give us a more comprehensive picture of Americans’ debt repayment behavior.

While the issuers measure their delinquency ratios on a per-account basis, rather than per consumer, TransUnion calculates its late payment levels as the share of Americans late on a payment to any one of their credit cards. Furthermore, the credit bureau defines a payment as delinquent if it is 90 days or more past due, whereas the issuers use two shorter periods: early-stage delinquencies for payments late by 30 – 59 days and late-stage delinquencies for ones overdue by 60 days or more. TransUnion’s late payment rate is in fact somewhere between the issuers’ delinquency and charge-off (default) rates.

Mississippi Has the Highest Delinquency Rate, North Dakota – the Lowest

Listed below are the states leading both ends of TransUnion’s table of quarterly credit card delinquency change:

1. Mississippi – 1.03%.

2. Nevada – 0.98%.

3. Alabama – 0.93%.

4. Arkansas – 0.91%.

…

47. Wisconsin – 0.51%.

48. South Dakota – 0.50%.

49. Alaska – 0.45%.

50. North Dakota – 0.42%.

The biggest year-over-year delinquency decline was measured in Wyoming – 29.49 percent.

Credit Card Debt Slightly Up

On average, credit card debt per borrower rose by $63 in Q3 2011, to $4,762, but still remains at near record-low levels. On a year-over-year basis, Americans reduced their outstanding credit card balances by 4.07 percent. The $4,679 level measured in Q1 2011 was the lowest one in 10 years.

Here are the leading states by average credit card debt per borrower on both ends of TransUnion’s quarterly table:

1. Alaska – $6,980.

2. North Carolina – $5,464.

3. Colorado – $5,378.

4. Georgia – $5,308.

…

47. Wisconsin – $4,156.

48. South Dakota - $4,090.

49. North Dakota - $4,078.

50. Iowa – $3,770.

The biggest year-over-year decline in credit card debt was measured in Tennessee – 16.81 percent – and the biggest increase – in the District of Columbia – 1.26 percent.

The Takeaway

TransUnion’s report of an increase in credit card delinquencies does not come as a surprise. Moody’s, a credit ratings agency, reported no change in its September delinquency rate, while five of the six biggest U.S. issuers registered an increase for the same month (Citi being the sole exception). The data from the next couple of months will tell us whether or not we have reached the bottom of the delinquency trough, but all indications are that we may have.

Even as the delinquency rate has flattened, however, the aggregate amount of consumer credit card debt in the U.S. keeps falling. The Federal Reserve reported a drop of 3.4 percent in August (the latest month for which data are available), bringing the total down to $790.1 billion, very close to the $789.8 billion mark reached in April, which was the lowest one on record in almost seven years.

Another positive piece of statistics is that the credit card monthly payment rate (MPR), measuring the fraction of their outstanding debt Americans pay back at the end of each monthly cycle, remains at record-high levels. The August MPR was 21.14 percent, which is about 30 percent above the historical average of 16.3 percent, as calculated by Fitch, another credit ratings agency.

So what all these data tell us is that Americans continue to be very cautious with their plastic money and are unwilling to increase spending, even as credit cards are becoming both easier to obtain and more generous in the rewards they offer. This will surely continue to be the case for as long as the economy is depressed and unemployment high, which probably means a long time.

Learn how to lower your card acceptance cost

Learn how to accept credit and debit cards at the lowest processing costs. The Payment Card Acceptance kit contains a video and an e-book:

• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).
• E-Book – Payment Card Acceptance Guide (19 pages).

Americans continued making their credit card payments on time at a record-high rate in September, keeping the aggregate delinquency rate unchanged from the previous month and at the lowest level in more than four years, according to data from Moody’s, a credit ratings agency. The default rate fell by three-quarters of one percent from its August level and is now more than 3.5 percent lower than at the same time last year.

Among the six-biggest U.S. card issuers, however, the picture was more mixed. With the exception of Citi, whose September’s delinquency rate was reported marginally lower than August’s, each one of the other six largest U.S. issuers stated higher levels of late payments in their latest regulatory filings. All six, however, reported lower rates of defaults for the month.

Credit Card Charge-offs Down 0.75%

The most impressive piece of data out of Moody’s monthly report is the steep fall in the default rate. The aggregate amount of outstanding credit card balances charged off by U.S. issuers fell by 0.75 percent in September from the previous month, to 5.27 percent, according to the report. Charge-offs (also called defaults) are delinquent credit card balances that issuers no longer expect to be repaid and write off (charge off) of their accounting books as losses, typically 180 days after collecting the latest payment on the account.

The September charge-off rate, Moody’s tells us, is 3.63 percent lower than the level of 8.90 percent measured a year ago. That must have set some kind of a record for a steep decline.

Credit Card Delinquencies Flat at 3.04 Percent

Following 22 consecutive monthly declines, Moody’s average credit card delinquency rate for September remained unchanged from its August level of 3.04 percent. That is still a 35 percent drop from the 4.65 percent level reported a year ago.

The ratio of credit card payments late by 60 days or more – the late-stage delinquency rate – rose by 0.02 percent to 0.65 percent. The early-stage delinquency rate – payments late by 30 – 59 days – also rose marginally in September, by 0.01 percent to 0.87 percent.

Top Issuers Report Lower Charge-offs, Higher Delinquencies

Five of the six biggest U.S. credit card issuers reported higher delinquency rates in September, but all of them reported lower default rates:

• JPMorgan Chase’s delinquency rate fell to 2.53 percent in September from 2.48 percent in August, after falling for 20 straight months. The bank’s charge-off rate fell for a fourth consecutive month, to 4.13 percent for the period from 4.67 percent. Chase’s current charge-off rate is at its lowest point since well before the financial crisis began and is 62 percent lower than the peak of 10.91 percent reached in January of 2010.
• Bank of America reported a delinquency rate of 3.99 percent in September, up slightly from 3.96 percent in August. This uptick follows 11 consecutive monthly declines, which brought and BofA’s delinquency rate to its lowest level in more than five years. The Charlotte, N.C.-based bank’s charge-off rate dropped by 0.80 percent to 5.99 percent, following another substantial decrease – by 0.64 percent – the previous month. While BofA’s default rate is still the highest in the industry, it is now 59 percent below the peak of 14.53 percent, registered in August 2009.
• Citibank was the sole big issuer whose delinquency rate fell in September – to 3.30 percent from 3.35 percent in August, the lowest level in more than four years. Citi reported a much more impressive drop in its charge-off rate, which fell to 5.87 percent from 6.92 percent in August. Citi still has the second-highest charge-off ratio among the top U.S. issuers, however it is now 51 percent below the peak of 12.14 percent, recorded in August 2009.
• Capital One’s delinquency rate rose 0.22 percent to 3.65 percent in September. It was the fourth consecutive monthly increase, following the record-low of 3.32 percent reached in May. The rate is still 2.15 percent below the January 2010 peak of 5.80 percent. The bank’s charge-off rate declined by 0.20 percent to 3.9 percent for the month. Although it is still higher than the four-year low of 3.77 percent measured in July, Capital One’s default rate is now 64 percent lower than the 10.87 percent peak reported in April of 2010.
• Discover reported a delinquency rate of 2.50 percent, up marginally from 2.49 percent in August, which marked the lowest level in more than five years. The September delinquency level is 56 percent below the October 2009 peak of 5.72 percent. The bank’s charge-off rate for September was 3.17 percent, down from 3.60 percent in the previous month, which marked the first time defaults dropped below 4 percent since October 2007. Discover’s current charge-off rate is 65 percent below the peak of 9.11 percent measured in February 2010.
• American Express continued to lead its peers in both the charge-off and delinquency categories. The New York-based bank reported a delinquency rate of 1.50 percent in September, up from 1.40 percent in August, but still 72 percent lower than the record-high of 5.30 percent reported in February 2009. American Express’s charge-off rate fell 0.4 percent to 2.3 percent, which is 78 percent lower than the peak of 10.4 percent recorded in April 2009.

The Takeaway

The fall in delinquencies must eventually come to an end. It is unclear whether that end has come in September, but if not we are certainly very close to reaching it. Charge-offs will continue to fall for several months after the delinquencies flatten out and Moody’s expects the average to drop below 4 percent by the end of 2012.

Credit standards have eased somewhat in recent months, Moody’s tells us, and other reports have shown that both the number and quality of credit card offers are rising rapidly. Yet, Americans are not increasing their borrowing.

Federal Reserve data shows that outstanding revolving credit, comprised mostly of credit card balances, is at a record low. Moreover, whatever they do borrow, Americans are eager to quickly pay back. The current monthly payment rate (MPR), measuring the proportion of outstanding balances cardholders are repaying at the end of each monthly cycle, is 21.29 percent, compared to a historical average in the mid-teens.

There is every reason to expect that this trend of cautious consumer borrowing will continue for as long as the economy remains depressed and unemployment sky-high.

Learn how to lower your card acceptance cost

Learn how to accept credit and debit cards at the lowest processing costs. The Payment Card Acceptance kit contains a video and an e-book:

• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).
• E-Book – Payment Card Acceptance Guide (19 pages).