As financial woes caused by the Great Recession continue to subside for millions of Americans, more consumers have been able to open credit cards—a sign that credit has eased.
Credit cards are a staple in consumers’ wallets, with more than 300 million cards outstanding. Consumer card delinquency rates are low, and payment rates have increased since the recession. Though consumers are spending, data suggests they are also managing card balances, typically paying down the balances on their cards.
Overall, card balances—approximating $530 billion—have not increased materially over the past year.
Card originations (new credit cards opened) have increased annually from the 2009 recession bottom, but growth temporarily paused during the second half of 2012. However, growth is resuming again in 2013, and consumers are showing signs of spending. Retail sales, for example, are higher by about 5 percent on a year-over-year basis.
From January through March of this year (the latest data available), 9.6 million new bankcards were originated with a $45.9 billion total credit limit, a five-year high for this timeframe, according to a recent Equifax Credit Trends report. This is still considerably lower than pre-recession levels of 2007: 17 million bankcards were originated from January through March, with a more than $75 billion total credit limit.
Subprime consumers, who represent a higher risk for card lenders, are an important part of this recovery. Card lenders have eased their underwriting standards for higher-risk consumers, rebounding from a pullback that occurred from 2009 to 2010.
Roughly 28 percent of bankcards originated are higher risk, up from 23 percent during the recession. This still lags behind the pre-recession years, when 40 percent of cards originated went to higher-risk consumers. Today, higher-risk card originations approximate about one million a month. Higher-risk originations were half this level during the recession and double this level pre-recession.
Consumer repayment rates have trended upward, surpassing 4 percent of balances since 2009 and hovering above 4.5 percent of balances today. With low card delinquency rates, card lenders will continue to lend and include higher-risk consumers. Economic fundamentals continue to improve and, with consistent performance, they will support increased card lending and transactions.
Janet Dedrick is a strategic consultant with the Equifax Analytical Center of Excellence. Janet covers US consumer credit trends reporting and analysis in addition to supporting Equifax client analytical initiatives. Prior to Equifax, Janet worked in the financial services industry in various roles, including risk management and banking regulatory policy areas. Janet holds an MBA from the University of Chicago.