On-time bill payment follows more holiday card use

Credit card users didn't suffer a holiday hangover this year.

The top six U.S. credit card issuers posted the lowest rates of default and late payments in two years on Tuesday, a strong sign that consumers had a handle on paying their bills in January.

The improvements followed a return to credit card use during the holiday season, after consumers pocketed their plastic throughout the recession. Card networks all reported higher usage for the fourth quarter after two years of declines, and Federal Reserve figures show balances moved up slightly in December.

Citibank reported the biggest improvement, with a default, or charge-off, rate of 7.49 percent of balances on an annualized basis in January, down from 8.34 percent in December. Payments that were 35 days or more late fell to 4.35 percent, from 4.44 percent.

Like rivals Bank of America, Chase, American Express, Discover and Capital One, Citi's numbers were the best seen in two years or more.

The improvements in late payments, or delinquency rates, are a particularly positive sign. All six companies posted their lowest delinquency rates since early in the economic crisis. Only Bank of America had a delinquency rate over 5 percent; with the exception of Citi, all others were under 4 percent.

"That points to even lower charge-offs in the coming months," said Michael Dean, a managing director at Fitch Ratings who tracks the securities backed by credit card balances that are used to draw up the default and late-payments data.

The statistics reflect only the performance of the credit cards that are securitized, or sold as investments. Dean said that pool encompasses a better credit card customer than it did a few years ago, but the figures still provide a good picture of overall U.S. card performance.

And what they show are dramatic improvements.

Industry wide, the charge-off rate peaked in the second quarter of 2010 at 10.37 percent of balances, Federal Reserve data shows. The highest for January was 9.2 percent at Bank of America, which tends to have a higher rate than other issuers. Capital One reported a 6.79 percent default rate, Chase 5.97 percent and Discover 5.75 percent.

American Express, which has a more affluent customer base, posted a 3.8 percent charge-off rate and a 2.1 percent delinquency rate.

Dean warned that the default rates remain higher than is historically normal. Fed data show in the two years prior to the recession, charge-offs averaged 3.82 percent.

"We're not out of the woods yet," he said. "But the recent trends are encouraging."