Credit-card payment performance declined in January, the first such deterioration after several years of improvement, in large part due to a rise in personal bankruptcy filings, according to Moody’s Investors Service.
Compared with a year earlier, Moody’s said more credit card balances were written off as uncollectible in January and more borrowers fell behind in their payments. For the same period, the payment rate and yield were relatively flat.
“In the credit card sector, year-over-year performance deterioration will likely be a common theme throughout 2007 since 2006 performance was unusually strong across the board,” William Black, a senior vice president at Moody’s, said in a statement.
Three of the five metrics tracked by Moody’s credit-card credit indexes — which track $410 billion of U.S. bank credit-card loans backing securities rated by Moody’s — posted declines in January. The charge-off rate, which measures credit-card account balances written off as uncollectible as an annualized percent of total loans outstanding, rose to 4.31 percent from the record-setting low of 3.21 percent a year before.
The delinquency rate, which measures the proportion of account balances for which a monthly payment is more than 30 days late as a percent of total balances, rose to 3.91 percent in January from 3.40 percent a year earlier, according to Moody’s. This marked the third month that the delinquency rate increased from its year-earlier level. The delinquency rate has been on the rise since mid-2006.
In January, cardholders paid back 20.03 percent of their credit card debts on average, relatively flat compared with last year’s January rate of 20.00 percent. The payment rate declined in December 2006 after posting a record of 42 consecutive months of year-over-year improvement.
Moody’s said most of the recent deterioration in the loss rate is due to the gradual rise in personal bankruptcy filings. Before the new bankruptcy law becoming effective in October 2005, filings spiked and then fell dramatically once the law took effect. Since then, Moody’s said, filings have been on the rise, but are still a fraction of what they were prior to the change in law.