Moody?s Sees Credit Card Charge Offs and Yield Rise

The charge off rate on credit cards in the U.S. rose to 5.59 percent in February, a rise of 24 percent from 4.51 percent in February 2007, and slightly above its long term average of 5.5 percent, according to the Structured Finance Group at Moody’s Inc.

A rise in card charge off rates usually is correlated to broad factors like unemployment and lags economic downturns, Moody’s reports. For example, card charge offs peaked at 7.05 percent in May 2003 following the recession of 2001. Therefore, charge offs could rise higher this year if the current downturn intensifies, according to Moody’s.

The delinquency rate on cards came in at 4.53 percent in February, up from 3.89 percent a year ago. The rate, which measures the number of accounts more than 30 days late in payment, is at its highest level since March 2004.

Moody’s tracks a portfolio of more than $445 billion of U.S. bank credit card loans backing securities to determine five performance metrics. Moody’s rates the card asset-backed securities (ABS) that make up the portfolio.

Despite the problems with credit cards, two measures of profitability held steady in February. The yield rose to 18.95 percent, up from 18.33 percent a year ago. Yield tracks the annualized percentage of income collected during the month as a percent of total loans.

The excess spread, which is the yield less charge offs and certain portfolio expenses, rose from 7.42 percent to 8.12 percent, a rate 12 percent higher than its long term average of 5.80 percent.