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Fantastic plastic! Credit cards come storming back

by Peter Andrew

It was only a few months ago that credit card companies looked mired in a sea of economic woes. Fewer credit cards were in circulation and people were using them less. As for credit card debt, that was in a seemingly endless downward spiral. How things have changed.

Credit card applications succeeding more

Until recently, relatively few Americans filling out credit card applications had much hope of seeing them approved. Even people with stellar credit scores could find themselves turned down. Those with damaged credit reports stood little chance of a positive response, especially when applying for the best credit cards.

The momentum appears to be shifting. Equifax, one of the big-three credit bureaus, published its latest Credit Trends Report on Friday, and it showed the total number of "bank card originations" (the number of credit cards issued) was up 28 percent in February compared to the like period a year ago.

Credit cards more accessible to subprime borrowers

This overall growth may have been considerable, but subprime growth was nothing less than extraordinary. In February, subprime originations (for those with a credit score of less than 660) jumped 75 percent, while the amount of credit extended to subprime borrowers increased by two-thirds.

Michael Koukounas, an Equifax senior vice president, said in a statement:

"The industry experienced significant credit limit contraction of almost $1 trillion during the Great Recession, driven by aggressive risk management and high levels of inactive account closures. With the latest data, we are seeing some loosening of credit overall, particularly among subprime bankcard originations."

However, there are signs that credit card companies haven't entirely forgotten the lessons of the credit crunch. The average credit limit on subprime cards dipped to $977 in February, down from $1,025 for the like period a year ago. During the same period, credit limits for all new cards fell to $4,008 from $4,086 in 2010.

Credit card use also up

Meanwhile, trade journal Collections & Credit Risk reported on data from PaymentsSource, which showed that the amount charged to credit cards (including charge cards, such as those from American Express) rose to $1.85 trillion in 2010, up from $1.75 trillion in 2009. That's a healthy 6 percent increase, and one that's made to look even healthier by the fact that payment volumes actually dropped by 9 percent between 2008 and 2009.

Credit card debt too

From the point of view of card issuers, credit card debt is important because interest earned is a revenue stream. Regular readers of this blog already know (see Credit card debt yo-yoing) that, after more than two years, the amount outstanding on card balances is finally beginning to rise again. It may be too soon to call this a trend, but there are signs of a return of confidence among consumers when it comes to using their cards to borrow.

So have Americans really fallen back in love with their plastic? Watch this space for more to come.

Published 05/24/11 (Modified 04/20/12)


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