The number of credit cards owned by American consumers fell dramatically during the recession but is once again on the rise. Equifax has reported that the number of new accounts issued in March of 2011 rose by 35 percent compared to March of 2010. This indicates that more Americans are applying for and being approved for new credit cards.
Loosening Credit Restrictions
Lenders are also increasing the credit limits on existing cards as competition tightens and more consumers start looking for a better deal. The amount charged each month by American consumers is also on the increase again, as they borrowed $167 billion in March of this year. That’s a 15 percent increase over March of 2010. It remains to be seen if these trends will continue or if they are merely blips, as an increasingly cautious public reins in spending once more.
Credit card debt declined drastically during the recession. The amount consumers owed on their charge card reached a high of $973 billion –almost a trillion dollars –in 2008. By June of this year, however, credit card debt had declined all the way $790 billion. That’s almost a 20 percent drop.
What happened? Did consumers manage to pay off all of this debt even during one of the worst recessions on record? Many consumers simply stopped making payments as they became more and more strapped for money. The peak delinquency rate on credit cards was 10.97 percent. Eventually the banks just wrote off the accounts, which lowered the total outstanding debt.
Fewer Card Holders
The number of consumers who owned a credit card also declined, and did so at a pace even more alarming than that of the debt itself. Over the course of one year, from 2007 to 2008, the number of consumers who had used a credit card during the year fell from 97 percent all the way to 72 percent.
Now that number is starting to creep back up. Many banks are loosening requirements and giving cards to people who would have received a swift decline only a year ago. As the pace of hiring increases, more people will leave the unemployment lines and will again be eligible to apply for a card.
Will More Credit Create More Spending?
The pressing question is whether or not they will do so, and if they do, if they will actually use the card. Consumer spending is still down by a third from its high in 2008 and has been stagnating for the past few months. Consumer confidence is still poor and getting worse; the latest numbers show a 4.4-point drop in Discover’s U.S. Spending Monitor. If this trend continues, it will be bad news for the credit card industry.
Currently, American consumers hold 609.8 million credit cards. The average consumer owes $14,743 on his or her cards, and each cardholder has an average of 3.5 cards. Right now newly issued cards have an average APR of 14.83 percent, while already existing cards with a balance are averaging 13.44 percent. These numbers are current as of May and March of 2011, respectively.