Moody’s Investors Service reports that credit card charge-offs rose 48 percent in August 2008, and it expects charge-offs to continue to rise throughout 2009.
Credit card charge-offs rose 48 percent in August 2008, according to Moody’s Investor Service, a financial research and analysis firm. The reporting agency says it expects charge-offs to continue to rise throughout 2009 as the economy softens, unemployment rises and consumer confidence declines.
|Credit card delinquency charge-off rates, 2005-2008|
Charge-offs measure the credit card account balances written off as uncollectable as an annualized percent of total loans outstanding. This most recent data covers $435 billion in credit card receivables.
The charge-off rate rose to 6.82 percent, compared to 4.61 percent a year ago, according to the report. The charge-off rate was 6.36 percent in July 2008.
The increase in the charge-off rate fueled speculation that consumers have lived beyond their means. According to an article in BusinessWeek by the Associated Press, “While more balances were written off, customers making payments also paid less of their balances.” Moody’s also said cardholders paid back an average of 17.4 percent of their outstanding credit card debt in August compared to August 2007, when consumers repaid 20.07 percent of their outstanding balances.Moody’s said the charge-off rate may rise to 8.5 percent by the end of next year, which exceeds the post-recession peak in May 2003 of 7.1 percent.
Moody’s latest data is the second recent gloomy report on consumer credit card delinquency. In late September, Innovest Strategic Advisors, a specialized financial information services and investment advisory firm, predicted “consumers’ access to new credit could be drying up, which would accelerate growth in charge-offs.” The company also predicts that credit card charge-offs will reach $18.6 billion in the first quarter of 2009, and over $96 billion by the end of next year. The net charge-off rate is expected to peak around 10 percent by the first quarter of 2009, says Innovest.
See related: Corporate announcements confirm delinquencies rising