With credit card defaults in decline this year, banks may increase lending to new customers in 2012.
While the easing of the lending standars will not be a match of that of four or five years ago, potential new customers with moderate credit scores will find it a bit easier to obtain a credit card in the new coming year. That’s thanks in part to existing card holders who have been making payments on time.
The top six credit card issuers reported on Thursday that for the month of November defaults and late payments had decreased thus pointing to a up trend in normal patterns this after the huge delinquencies resulting from the economic crisis, according to Moody’s Investors Service.
Normally late payments tick up during the end of the year, especially the first few months of each new year, then trend downwards as people pay off holiday purchases and consumers receive cash from income tax refunds.
Some credit card issuing companies, most notably Citibank and Capital One Financial Corp., reported increases in defaults for this November, though rates are still near historic lows. American Express and Discover Financial Services said their default rates have remained well below their traditional levels.
One of the reasons why people are paying their bills on time is that the massive defaults by credit card customers in recent years (the total estimated balances written off since the recession began was about $75 billion) – mean that fewer people possess credit cards now. TransUnion one of the big three Credit reporting agencies estimated a year ago that more than 8 million people had left the credit card market since the Great Recession began, though TransUnion has noticed a loosening of credit in the market. It is said that about 250,000 new cards were issued from June to September to consumers with some trouble making payments in the past, this indicated by their moderate credit scores. In order to grow credit card issuing companies need to find new customers, especially after spending the past two years competing for the those with high-credit scores.
In turn, there likely will be an uptick in late payments, which also have reached historic lows, as some of the returning borrowers revert to prior habits and are unable to make payments. But there are signs that card users are changing their behavior, using cards more often but paying balances in full each month. Discover Financial Services on Thursday was the latest card company to report an increase in full payments each month.
Credit card companies are still keeping a close eye on the market, but an uptick in credit card issuing is expected for 2012.
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