Although the US Federal Reserve has been increasing interest rates, lenders have also been increasing consumers’ access to credit.
Along with opening up a “record” $89 billion in new credit card accounts during the year’s first quarter, banking institutions also boosted spending limits on 18.4 million existing accounts, The Wall Street Journal reports.
Due to all this, Americans’ collective credit card bill has reportedly exceeded $1 trillion for the first time in August 2023. For banking institutions, greater credit limits could potentially mean collecting additional revenue on clients’ unpaid balances as well as merchant fees. For consumers, however, unsolicited credit-line increases usually tend to drive excessive spending and debt.
As noted via LinkedIn, Discover, Synchrony Financial and Capital One are listed among the lenders with intentions to support credit line increases and credit card offers this coming fall.
Notably, U.S. consumer credit increased $10.4 billion in July.
As covered last month, credit card debt is now over $1 trillion, having increased by $45 billion from April to June this year. This has led to some concerning as well as interesting trends, according to a report by JD Power.
In the Credit Card Satisfaction Survey, results indicate that 51% of credit card holders are maintaining revolving debt. The average interest on this debt is pegged at 14.8%.
When looking at just cardholders that are deemed “financially unhealthy,” this percentage of revolving debt jumps to 69%.
Unsurprisingly, these unhealthy cardholders do not believe these cards encourage good financial decisions.
Regarding payment plans, a fairly recent innovation for cardholders to handle card debt more like a loan – usage is “erratic,” varying from 9% to as high as 23%, with usage mainly by “financially healthy” or “over-extended” individuals.
As reported in May 2023, the Q1 2023 Quarterly Credit Industry Insights Report (CIIR) from TransUnion (NYSE: TRU) shows that in this current economic climate in which inflation remains at elevated levels and interest rates have risen sharply, consumers “are increasingly turning to credit to manage their household budgets, leading to record- or near-record high balances in credit cards and unsecured loans.”
Michele Raneri, vice president of U.S. research and consulting at TransUnion, said:
“We have seen record levels of originations in credit cards and unsecured personal loans since mid-2021 as strong credit positions have allowed consumers access to additional products. As inflation rose to near 40-year high levels, many consumers have used credit to help manage their budgets, leading to record- or near-record high balances. It remains to be seen whether these balances will continue to grow in the near-term, or if growth will slow as consumers moderate their pace of borrowing and if lenders more closely scrutinize consumers and potential risk when determining to whom they lend moving forward.”
While down “slightly quarter-over-quarter (QoQ) at -1.5%, credit card balances remain near record highs at $917 billion, which represents a year-over-year (YoY) increase of almost 20%.”