Moody’s: Credit card charge-offs dip a bit in December, but spike is likely in coming months

Credit card charge-offs dip slightly in December

NEW YORK — The rate at which credit card companies wrote off consumer debt slowed slightly in December, but Moody’s Investors Services expects a sharp increase in coming months.

The U.S. credit card charge-off rate slipped to 10.32 percent last month, from 10.56 percent in November, Moody’s said.

The charge-off rate measures account balances written off as uncollectable, as an annualized percentage of total outstanding principal balance.

Moody’s said the drop in December was the third in four months, but it likely reflected higher overall balances due to holiday shopping.

The agency still expects the charge-off rate to soar to between 12 percent and 13 percent during the first half of this year. The record high of 10.76 percent was reached last June.

Several factors will play into the rising rate, Moody’s said. First, many cardholders will try to pay off holiday charges at the beginning of the year, reversing the impact of higher balances in December.

Second, Chase, the biggest U.S. card issuer as measured by outstanding balances, had a “payment holiday” that it offered to some cardholders during the summer. That postponed any contribution to the charge-off rate that those cards would have made. As the holiday expires, cards in that group that go unpaid will push the charge-off rate higher, Moody’s said.

“We believe that the incremental charge-offs attributable to this ‘payment holiday’ will be most pronounced in January’s numbers, increasing the charge-off rate for both Chase and the overall index,” the agency said.

Finally, high unemployment will continue to make it hard for many consumers to pay off their cards. Unemployment, currently at 10 percent, is one of the main reasons behind credit card charge-offs.

Moody’s also reported a small improvement in the delinquency rate index, or the proportion of balances for which a monthly payment is 30 days or more past due, to 6.09 percent in December from 6.2 percent in November. That was the first dip after four months of increases.

Early stage delinquencies — payments that are one month past due — fell in December for a second month in a row.

That plus 2009’s only payment rate increase are encouraging signs for the second half of the year. The payment rate, which measures the average amount of principal that cardholders repay each month, rose to 18.03 percent from 18 percent.