Credit Card Performance Still Strong; Charge-offs May Pick Up

U.S. consumer credit performance improved in the third quarter of 2006 when compared to Q3 a year ago, according to Moody's credit card indexes, which track approximately $400 billion of credit card receivables.

Nearly all performance measures were up over the numbers in the year-ago quarter. But recent monthly figures have Moody’s concerned.

"Analyzing the performance on a month-over-month basis, however, may portend that the long-anticipated (and by some accounts, long-overdue) period of aberrantly low delinquency and charge-off rates may be coming to an end," William Black, senior vice president at Moody's, told Reuters.

September was the third consecutive month of increases in delinquencies. But year-over-year, delinquencies and charge-offs are down. Moody’s says that this is an anomaly and due mostly to the timing of the new bankruptcy law going into effect. The rating agency claims that the recent upswing in delinquencies is signaling a coming increase in charge-offs.

In September, the charge-off rate fell to 3.96% from 5.39% in 2005. For the third quarter, the charge-off rate fell to 4.06% from 5.58% in the prior year's third quarter.

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