We knew it was just a matter of time before credit card companies began loosening their restrictions and now, it looks as though it’s coming full circle. A new report sheds light on this long awaited shift in consumer finance – and if predictions pan out, it could be the long awaited sign that the recession is finally behind us.
Consumer credit cards are being offered with higher credit limits these days and in fact, it’s similar to what card companies were offering in 2009. This, according to a new Equifax report, released earlier this week, also shows that the amount of new credit card limits opened in the first three quarters of 2012 hit $675 billion, up from just $523 billion during the same period in 2010. Not only that, but both student loans and new automobile loans are on the rise too and some economists are breathing a sigh of relief while others are warning consumers to tread lightly.
The new limits represent about a third of outstanding balances, said Amy Crews Cutt, Equifax’s Chief Economist. She also says the data indicates consumers are approaching credit card debt responsibly. Retail credit cards are said to be the driving force behind the gains made in 2012, but still, traditional bank credit cards are also seeing bigger increases over the past twenty four months. Retailers saw their credit issues increase to $47.5 billion in new credit, which is indicative of a 17 percent increase from the numbers in 2010. Traditional bank credit cards accounted for more than $132 billion in the same time period, which is indicative of a 44 percent increase from its lowest point since the recession.
Guidelines are easy across the lending board, too. Banks are already loosening their restrictions and have begun loaning more. Further, credit utilization also remains low across most of the credit card accounts issued by banks. The credit bureau reported that consumers used just 22 percent of their available limits; meanwhile, during the same period, year-over-year write-off rates continued to drop another 20 percent. This is clear evidence, according to analysts, of a shift to using cash more often than credit. Consumers are holding on to their credit cards, though. The total number of bank credit card accounts exceeded 300 million for the first time since April 2010. This is a 28 month high.
The only concern, according to Crews Cutt, is that most Americans still haven’t recouped totally from the recession – or even close to recovering completely. She said the consumer driven economy is working, but at a slower pace. Unsecured lending becoming easier should further facilitate those efforts. Be aware, though, this is all dependent on a strong recovery in the employment sector. This caveat is what has some worried.
Auto Lending Increases
Equifax is also reporting that automotive credit is increasing steadily as well. The new automobile loans opened in the first half of 2012 mirrored numbers from 2008 and earlier. This is being touted as a strong indicator of a long overdue improving economy. The credit card and other unsecured loan increases are solid, but long term, fixed rate loans could hold the key to a stronger year.
With auto lending gaining strength once again, it’s showing an increasing demand for new cars. In fact, year to date through June 2012, the total auto lending has reached $207 billion. This is a 13.7% increase over the volume during the same period in recent years. There has also been a 15% increase in the sales of new cars and light trucks, too. The trends are showing that consumers are looking for smaller vehicles that are efficient and easier to own from a financial stance. There were 10.2 million new car loans made last year – the highest since 2011 when there were 11 million new car loans.
But it gets better – delinquency and write-off rates on auto loans and leases are also impressive and are well below levels seen at the start of the recession in late 2008. Meanwhile the number of auto account write-offs is about half of the peak volume. And write-off rates using both dollars and units exceeded 4% at the start of the recession.
Crews Cutts explained,
The average age of cars on the road today in the US is the highest ever recorded and consumers are ready to replace these older vehicles…at the same time, the financial picture has improved sufficiently that we are seeing auto lending markets become facilitators rather than obstacles to meeting this demand, especially in the near-prime segment of the market that had all but ceased to exist during the worst of the financial crisis and recession.
There is even an increase in student loan credit. It’s up more than 15 percent. In 2010, it totaled $25.6 billion and through the end of 2012, it reached $30.3 billion. The balances are increasing, too. Earlier in 2012, the total balance owned was $800 billion. Ah – but there’s still some concern in this area. Student loan write-offs totaled $10.6 billion year-to-date through August 2012, which shows an increase of more than 10% from same time in 2011, which was $9.5 billion.
The average student loan is 67% higher today than it was in 2008. This past June, it was $9,467, compared to $5,660 in 2008. And students are borrowing more, too. The average single student loan in June 2012 was $5701, and compared to June 2008′s numbers of $4126, it’s clear students are feeling safe enough to attend school with a better future at graduation. They’re even taking out multiple loans again. Some economists are warning those considering college to tread lightly. While this all bodes well from an economic stance, the fact is, there is no certainty on what lies ahead in terms of the employment sector.
What do you make of these numbers? Do you believe the economy is on the mend or it is possible this is just a brief reprieve before the debt ceiling storm falls? Plus, what do you think this will mean for the millions of Americans whose credit ratings took a beating during the recession? Let us know your thoughts and predictions on what 2013 will look like in hindsight.
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