More consumers are saying yes to new credit lines as lenders slightly loosen loan standards they cinched tight in the wake of the recession. But the market is unlikely to see a return to runaway credit card debt.
Subprime borrowers in particular are signing up for new credit lines in greater numbers than during the past few years, according to new data TransUnion LLC released May 16.
Total credit card account originations in 2011 increased more than 20% compared with 2010, TransUnion said in a press release.
Moreover, subprime borrowers, or those with a credit score lower than 700 (on the VantageScore scale where 501 represents the highest and 990 the lowest risk) drove 24.2% of new account originations last year, up from 21.8% in 2010, the Chicago-based credit bureau said.
Rival credit bureau Experian also noted a trend toward more credit card originations in 2011 at both the higher and lower ends of the consumer-borrowing spectrum.
"There has been significant uptake of new credit card offers among super-prime prospects, and sub-prime consumers are once again receiving offers" for new credit cards, Linda Haran, senior director for product management and strategy, Experian Decision Analytics, tells PaymentsSource.
But the data suggest consumers are being relatively careful in tapping new credit card lines, Haran says.
At the end of 2011, lenders had extended $62 billion in new available credit to consumers, up 29.2% from $48 billion a year earlier, Haran says, citing Experian research. But consumers had tapped less than $20 billion of the total available new credit through yearend, she says.
"People are being pretty reasonable, if not even conservative, in using new credit lines available to them," Haran says. "I'm seeing spending on the rise, but no significant run-up in credit, which indicates consumers are feeling more comfortable about accessing new credit lines, but they are not overleveraging themselves."
The caution consumers are demonstrating in using new credit lines reflects the effect the mayhem that followed the economic crisis had on borrowers' psyches, Haran believes.
"After the downturn, a lot of consumers made the conscious decision to not take on any more credit debt," and that effect is lingering, she says.
Another major factor keeping a lid on rampant borrowing is that the economy still is not running on all cylinders, James Chessen, chief economist for the American Bankers Association, tells PaymentsSource.
"There is still a lot of nervousness and some uncertainty among consumers," Chessen says. "We are seeing some pent-up demand in consumers’ spending, but the jobs picture is unsteady and there is a hesitancy to borrow."
The Federal Reserve Board on May 7 said total U.S. outstanding credit card debt in March rose by $5.1 billion to $803.6 billion, up 0.6% from $798.5 billion in February, reversing two consecutive months of declines (
A variety of factors could be behind the increase, such as higher consumer prices and an uptick in gas prices in recent months, Chessen says.
The overall increase in the Fed's credit numbers could reflect the result of higher gas prices during the first quarter that helped to bump up credit card purchase volume because "a lot of people pay for gas with credit cards, particularly as gas prices rise," he says.
But such higher spending does not necessarily translate into more consumers revolving credit card balances, Chessen says, suggesting that consumer credit card spending will fluctuate in the coming months along with gas prices.
"Much has changed in the credit card industry in the past few years, with people losing access to credit as banks tightened lending standards," he says. "Banks became more selective, some people turned to prepaid cards to manage their money, and the appetite for borrowing slowed. Credit cards are a mature market, and any growth will be very gradual."
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