More consumers were able to successfully pay off their delinquent credit card debt last month, according to the latest statistics reported by Moody's Investor Services. As a result, charge offs for all lenders fell by more than apercentage point, from the 10.03 percent observed in August to 8.9 percent in September.
The report said the steep drop signaled what Moody's had predicted: that the slight increase observed in August was only related to seasonal factors, rather than a new trend beginning. Currently, the charge off rate is 2.6 percentage points lower than the peak seen in August 2009. In addition, the company now says charge offs will continue to decline into the first half of next year.
The report said the decline is likely related to the improved quality of consumer credit, as many with bad credit have been flushed from the credit system.
"Borrowers with relatively weak credit profiles have been charged off over the past couple of years, while issuers have tightened underwriting standards," said Moody's analyst Jeffrey Hibbs. "The borrowers that remain tend to be stronger and more resilient to the ongoing weakness in the labor market."
Any changes in charge off rates can typically be traced back to delinquency rates, the report said. The latest delinquency statistics show a slight decline in that area, from 4.7 percent to 4.65 percent between August and September. This marks a drop of more than a percentage point over the last year.
Meanwhile, early-stage delinquency, accounts between 30 and 59 behind, actually increased slightly in September, the report said. The latest rate was 1.23 percent, up from the 1.2 percent seen the month before. However, the second half of the year typically sees higher early-stage delinquency rates for seasonal reasons, and the overall average rate for these problems was lower in the third quarter than it was for the second. That was the first time in a decade this phenomenon was observed.
Many lenders have also seen reductions in defaults and delinquencies because more consumers are spending less on their cards every month. At the same time, they are also increasing the amount they pay into their debt.