More credit cards, more offers, higher limits. Plastic's back!
When it comes to plastic, Americans are partying again -- like it's 2008. The number of new credit cards issued in the first quarter of this year topped 11.3 million, according to the latest Equifax National Consumer Credit Trends Report, published early in July. That's the highest number for six years, and represents an increase of 17.2 percent over the same three months in 2013. Meanwhile, the amount of credit originated on cards shot up too, by $57.1 billion in the first quarter of 2014, also a six-year high and an increase of 24.4 percent over the rise during the same period in 2013. Presumably, if the amount of credit available goes up faster than the number of cards, that means individual credit limits must be higher.
It takes two to tango
These statistics suggest a significant shift in the entire credit card market. Both consumers and card issuers seem to be reassessing how they view each other.
For six years or so, many consumers have shunned these products, preferring debit or prepaid cards or even cash. During the Great Recession, plummeting property prices wiped out the net worth of millions. Meanwhile, unemployment was high, prospects uncertain and salaries stagnant. No wonder many found card debt heavily onerous, and promised themselves they'd never again burden themselves in that way.
At the same time, credit card companies were going through their own version of hell. According to a March 2014 report by the Federal Reserve Bank of Philadelphia, "It is estimated that more than $160 billion in credit card debt has been charged off since 2008." "Charging off" is an industry term for writing debt off the books, and passing it for collection. All this was going on during a period of low credit card use, meaning interchange fees (issuers' cuts of transaction values) were down, and the Credit CARD Act was preventing them gouging customers with outrageous fees. You'd have needed a heart of stone not to have laughed.
Time for self-knowledge
Maybe time does heal all wounds, after all. But it's a bit worrying if such harsh lessons are being forgotten after only six or seven years. The question is: Are they being forgotten? Maybe, today, consumers and credit card companies are taking entirely different approaches to card borrowing and lending. Maybe caution and responsibility are the new watchwords. Maybe porcine aviation has suddenly become possible.
The signs certainly aren't good. The Federal Reserve's consumer credit data shows revolving credit (which is nearly all card debt) up $19.6 billion between the last quarter of 2013 and May. And, in data released exclusively to The Wall Street Journal, Equifax revealed that 3.7 million of those 11.3 million new cards issued in the first quarter went to sub-prime borrowers. Issuing to consumers in that group leaped 39 percent year-on-year, more than twice as quickly as it did for plastic as a whole.
And all this is happening at a time when many people remain deeply troubled by debt. Last September, market research company Mintel found that one quarter of all U.S. households find their levels of debt "causing significant stress in their lives," and the same number claimed their debt "impacts their day-to-day lives." Fewer than half believed that, for them, it was "an achievable goal to be debt free at retirement."
Credit card offers more numerous
Plastic can be toxic for those who can't manage their personal finances well. But, for everyone else, they're a blessing. Simply and objectively put, while they may be lousy ways to borrow, they're the very best way to pay for purchases.
So there's a real upside to these changing attitudes to cards for smart, responsible consumers. Late in June, The Wall Street Journal reported on an increase in the number of credit card offers being mailed to homes. Based on data from a different Mintel study, 992 million offers were sent in the first quarter of this year, an increase of 7 percent over the 927 million in the same period in 2013.
And some of the deals available are seriously worthwhile, especially those for zero-percent balance transfer periods or attractive sign-up bonuses. As CardRatings.com founder Curtis Arnold told the Journal, "The tendency is to trash every card offer that comes your way, but if you don't even give it a cursory glance, you may miss out on great offers."
If you're a good money manager, and haven't reviewed the contents of your wallet for six months or a year, now might be a good time to make sure that the cards you have are still the ones that suit you best. New products are launched -- and existing ones tweaked -- all the time, so it's important to carry out periodic checks.
Published 07/14/14 (Modified 07/23/14)