September 10, 2015

New credit card account openings highlight strong showing for consumer credit

Although credit card issuers remained picky about who gets their plastic, the first quarter saw new charge accounts hit their highest level since 2008.

Figures crunched by the American Bankers Association showed new credit card accounts rising 14 percent year-over-year, according to the most recent edition of the trade group's credit card market monitor.

Still not 'anything goes'
Drilling down into the credit profiles of these new cardholders, it's clear issuers are still being careful. Consumers with prime and super-prime credit records drove most of the gains, the ABA noted in a press release. That's not to say sub-prime accounts weren't a significant part of the mix: That category grew to its highest level since 2012. Here's what James Chessen, chief economist for the ABA, had to say about that dynamic:

"Banks continue to create opportunities across all categories with a prudent approach that opens the door for millennials with no credit history as well as those who have had difficulty managing credit in the past," Chessen said.

American Banker noted that the providers of the 73 million accounts added in the first quarter aren't taking the kind of risks they did before the financial crisis. Consumers with gold-plated credit scores 759 or higher accounted for more than half the new cards.

Consumers keep debts manageable
Thus far, the credit card binge doesn't seem to be making consumers forget hard-won lessons from the recession about not over-extending themselves. Chessen pointed out that credit card debt outstanding as a share of disposable income is at just 5.3 percent. That's below the median of 5.7 percent across every quarter since 1980, according to Federal Reserve statistics.

"While consumers' appetite for credit has steadily increased as the economy stabilizes," Chessen wrote, "they remain laser focused on keeping debt at manageable levels and making sure their accounts are in good standing."

The surge in new credit card accounts comes amid wider signs of growing confidence on the part of consumers - whose spending drives roughly 7 out of 10 of the economy's dollars. Consumer credit, boosted by higher credit card balances and car loans, rose $19.1 billion in July, soundly beating analysts' expectations, according to Bloomberg Business. Nearly three dozen experts tapped by Bloomberg had foreseen a median spike of $18.8 billion. It's worth noting that figure does not include debt backed by real estate.

Loan balances swell
Bolstering this optimistic picture are recent results from the banking industry as a whole. Loan balances ballooned by $185 billion during the second quarter, according to a report from the Federal Deposit Insurance Commission. The credit-worthiness of the people taking out those loans is also trending upward.

Consumers' new openness to seeking credit - coupled with banks' willingness to extend it - are driving significant changes to loan portfolios. Any questions or concerns about whether it's the right time to sell portions of your banks' loan pool can be discussed with loan sale advisory firm Garnet Capital Advisors.