US credit card performance improves in July - Moody's

NEW YORK Aug 21 (Reuters) - Performance in the U.S. credit card industry improved in July as lenders wrote down less debt as uncollectable and charge-offs fell from June's record highs, according to Moody's Credit Card Index.

The charge-off rate index fell to 10.52 percent last month from June's 10.76 percent high, marking the first month over month improvement since last September.

Other key gauges of performance, including the payment rate and yield also showed improvement, while delinquency rates fell for the fourth consecutive month, Moody's said.

The rating agency expects to see the charge-off rate peak in mid-2010 at between 12 and 13 percent, to coincide with an anticipated peak in the unemployment rate of 10 to 10.5 percent.

However, it said further and persistent improvement in delinquency and charge-off rates in the months ahead may challenge its macro-driven forecast.

The overall delinquency rate, that measures monthly payments delinquent by more than 30 days, declined to 5.73 percent, its lowest level of 2009. The July drop follows seasonal improvements in April, May and June.

"July tends to mark an inflection point with respect to seasonal trends. As we move into the second half of the year, we expect delinquencies will again rise as back to school and holiday expenditures compete with credit card payments," said William Black, a senior vice president at Moody's.

The index also shows payment rates rising sharply for the second consecutive month, reaching 17.43 percent, its highest point since October 2008. The payment rate measures the average amount of principal that cardholders repay each month.

Yields, the monthly income generated by finance charges and fees on credit card accounts, surged to 19.82 percent in July, for a 130 basis point improvement over the prior month, reaching its highest level since December of 2007.

"The combined effects of issuer discounting and the realization of continued issuer re-pricing initiatives should continue to support yield in the months ahead," said Black.

July's excess spread rose to 6.42 percent, lifting its three-month average excess spread higher to 5.22 percent and off June's 10-year low. The excess spread is a proxy for the profitability of a card program, and generally represents the yield or income of a credit card trust, minus expenses such as charge-offs, coupon, and servicing.

Moody's Credit Card Index is based on the credit performance of approximately 300 individual credit-card-backed securities totaling about $410 billion of bank credit card debt. (Reporting by Nancy Leinfuss)