JANUARY 2005

Positive Trend in Credit Performance Continues

Moody's Investors Service's monthly credit card loan performance metrics continued their streak of improvement in October. The delinquency rate, which portends the future direction for chargeoffs, fell to 4.47 percent of receivables compared to 5.16 percent in October of 2003 (see Figure 1 below). The October 2004 chargeoff rate dropped 54 basis points from its year ago level to 5.99 percent. Figure 2 below shows that Q3 2004 marked the fifth straight quarter of improvement in the delinquency rate and fourth consecutive quarter in which chargeoffs improved from the year-earlier rate. Moody's senior credit officer, William Black, noted that "this cycle of improvement is not likely to end in the near term."

Black's forecast is supported by a positive key economic indicator. In late December, the Commerce Department revised upward its third quarter measure of U.S. GDP from 3.9 percent to a 4 percent annual growth rate, marking six consecutive quarters of economic growth greater than three percent. Fitch Ratings' 2005 outlook for the prime credit card sector "sees room for improved performance [due to]...a further decline in bankruptcy filings and an improving economic picture...for what most economists expect to be a long-lived expansion."

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