For all practical purposes, credit card delinquencies have been improving and improving for close to the last three years. That is perhaps coming to an end. It was in October that Fitch showed a broad industry report that retail credit card delinquencies of the 60-day caliber were 2.7% in the third quarter of 2012 versus 2.9% in the second quarter of 2012. Also in October we saw a Moody’s report showing that charge-offs in September had dropped but delinquencies were on the rise.
Now we have Fitch Ratings showing that U.S. credit card delinquencies rose for the first time in 12 months according to the latest Credit Card Performance Index.
Aside from a small blip for Citibank of Citigroup, Inc. (NYSE: C), the large trusts including Bank of America Corp. (NYSE: BAC), Capital One Financial (NYSE: COF), Chase of J.P. Morgan Chase & Co. (NYSE: JPM), and Discover Financial (NYSE: DFS) were said to have all reported monthly improvements in default rates.
Late stage delinquencies rose by two basis points to 1.71% in October, after having seen a five-year low a month earlier. Fitch also said that early stage delinquencies (30 days past due) remained relatively flat from the previous month at 2.21%.
The good news is that Fitch expects charge-offs to remain relatively stable as delinquencies hover at these current levels. The question to ask is what happens if the economy continues to soften. Fitch’s Prime Credit Card Chargeoff Index for October posted its second month-over-month improvement, decreasing another 13 basis points to 4.16%. The decline this month in cardholder defaults represents the lowest level since early 2007 and is down 25% year-over-year. From its peak in September 2009, this decrease also marks an astonishing 64% drop.
We would probably not want to throw up any major panic warnings based on this one report. It takes months to form a trend, but this is after many consecutive improvements and after delinquencies have reached cyclical lows.
JON C. OGG