Credit Card Delinquency Rates Fall for 17th Consecutive Month
More Americans are paying their credit card bills on time, a good sign for both consumers and the banking industry. Delinquencies are now at their lowest points since the financial crash in 2008.
Payments over 30 days late are considered delinquent. Moody’s reports the delinquency rate fell in March for the 17th straight month to 3.79 percent from 4.02 percent in February.
Bank of America has the highest delinquency rate: 4.82 percent of balances on an annualized basis. American Express, with the most affluent customers, has the lowest delinquency rate of 1.8 percent of balances.
The charge-off rate (uncollectible balances) is also slowly declining, but still remains high. Moody’s Investor services says delinquencies declined to 7.35 percent in March from 7.56 percent in February. Bank of America has the highest delinquency rate at 8.18 percent. American Express has the lowest at 3.7 percent. Moody’s predicts that the charge-off rate for U.S. credit cards will fall below 7 percent in the second quarter. The peak was at 11.5 percent in August 2009.
Delinquencies are lower, but consumers are also spending more with some issuers. American Express reported a 17 percent increase in card usage. Cardholders spent $187.9 billion during the quarter, compared with $161 billion last year.
Capital One’s purchase volume increased 14 percent during the quarter. It also opened more new accounts in March than it had since November 2007.
Other issuers are recovering from losses but struggling to grow sales. According to Barron’s, Citi’s net credit losses dropped 33%. But average loans for Citi-branded credit cards were down 7% year over year.
The financial collapse of 2008 has had a long-lasting effect on credit card loans but conditions are slowly improving for both borrowers and lenders. Credit card balances dropped because cardholders reduced their use of credit cards at the same time as issuers reduced their own lending risk, slashed credit limits on millions of existing accounts and closed riskier accounts. Lower balances are good for consumers because credit card interest rates continue to climb. However, issuers need to see growth in credit card use in order to increase their revenue numbers.