Lenders have scrubbed their portfolios of bad loans, and borrowers have cleared their portfolios of loans that might have soured.
The slate has been wiped clean. It’s a fresh start, a new day…
The credit cycle in the United States is changing, and the economic recovery is pulling itself up by its bootstraps.
Originations are up almost everywhere. Even the unthinkable is happening, as the number of home equity lines was higher year-over-year in October 2010—a first since 2006, when I started tracking originations. New auto loans are leading the way and are well off the lows of last year, with auto credit more than 17 percent higher this year than last year.
During the heart of the crisis—the end of 2008 through 2009—card issuers closed not only high-risk cards but also potential high risks. Card closures, typically on inactive or untapped card lines, are a way to manage the level of future risk, which for card lenders is the level of unpaid balances.
New data available at Equifax highlights card closures, primarily without delinquency. About 66 million cards closed in 2006–7, increasing to 108 million in 2008–9, when the recession was at its worst. That was a sizable increase of 67 percent. About 70 percent of these closures were from consumers with better credit standings—the credit deterioration has to come from somewhere.
The card closures are behind us, and new card growth is picking up continually. With several months of sustained increases, the number of new cards is about 1 percent higher January to October 2010 than a year ago, and new subprime, or higher-risk, cards are up 8 percent for the same time comparison.
We are seeing the return of auto lending, but we are seeing the same in credit cards. Card balances have been declining for about two years, but the rate of decline is slowing. With some visible positive signs, some pickup in spending, new card growth, and the worst of the write-offs behind us, we will likely see card balances grow in 2011.
So, let’s all step into our plutonium-powered DeLoreans and look out for improved credit patterns in the future.
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