8 Jul 2015

DEFINITION of ‘Roll Rate’
The percentage of credit card users who become increasingly delinquent on their accounts. Roll rate refers to the percentage of card users who “roll” from the 30-days late to the 60-days late category, or from the 60-days late to 90-days late category, and so on. In the credit card industry, creditors report late payments in one of six categories: 30-days late, 60-days late, 90-days late, 120-days late, 150-days and charge-off (which occurs when a payment is 180 days late). Banks use roll rates to predict credit losses based on delinquency.

For example, if 20 out of 100 credit card users who were delinquent after 30 days are still delinquent after 60 days, the 30-to-60 (days) roll-rate is 20%. Furthermore, if 30 out of 100 credit card users who were delinquent after 60 days are still delinquent at the 90-day mark, the 60-to-90 roll-rate is 30%, and so on.

Credit card issuing banks estimate credit losses by segregating their overall credit card portfolio into delinquency “buckets,” similar to the 30-day, 60-day categories mentioned earlier. A bank’s management measures roll rates for the current month and current quarter, or an average of several months or quarters to smooth out fluctuations. Once the roll rates are determined, they are applied to the outstanding receivables within each bucket, and the end results are aggregated to estimate the required allowance level for credit losses.

Banks calculate roll rates based on the total balance in each delinquent category. For instance, if the 30-day delinquent balance for a small bank’s credit card portfolio in February is $100 million, and the 60-day delinquent balance for March is $40 million, the 30-to-60 day roll-rate in March is calculated 40% (i.e. $40 million/$100 million). This implies that 40% of the $100 million receivables in the 30-day bucket in February have migrated to the 60-day bucket in March.

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