Research and Statistics

Credit card lending standards loosen for 1st time in 3 years


It got easier to get a credit card in the second quarter of 2010, according to data released by the Federal Reserve on Monday

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For the first time in three years, it has gotten easier to get a new credit card, Federal Reserve data show.

In the second quarter of 2010, banks loosened credit for the first time in three years. The graph below charts out the change in that percentage since the start of 2007.

(NOTE: Percentages represent net percent of banks reporting tightened lending standards. Positive numbers represent the percentage of banks that are tightening; negative numbers are the percentage loosening.)

Quarterly loan officer survey from the Federal Reserve

The Federal Reserve’s latest survey of senior loan officers, released Monday, shows that credit card lending has begun to thaw after a three-year freeze. About 8 percent of banks said they eased their lending standards in the second quarter of 2010, while none said their standards had tightened. This ends an 11-quarter run of credit tightening that dates back to 2007 and peaked during the darkest days of the recent economic recession.

Banks also made other types of consumer loans more available, with a net 13.2 percent of survey respondents saying they eased lending standards. But not all cardholders are enjoying free flowing credit: The Fed survey shows that credit remains limited and costly for most existing cardholders.

Such tight bank lending means consumers may experience higher interest rates, lower credit limits and higher minimum credit score requirements for card approvals. Amid the challenging economy and the restrictions imposed by the Credit CARD Act of 2009, banks had been unwilling to lend. During the recession’s depths in the second quarter of 2008, 66 percent of banks said they had tightened lending standards.

Every three months, the Fed surveys banking executives about changes in the supply of and demand for loans to businesses and households over the previous quarter. The latest survey included responses from 57 domestic banks and 23 U.S. branches and agencies of foreign banks.

More borrowers get, use plastic

The Fed’s latest survey showed that 7.9 percent of banks reported easing their standards for approving card applications, while 92.1 percent said their standards were basically unchanged.

Nevertheless, banks are clearly increasing their card offers to U.S. households. According to data from Mail Monitor, the syndicated credit card tracking service from market research firm Synovate, U.S. homes received 640.3 million credit card offers in the second quarter, up 83 percent from the same period a year ago. “As a result of this increased competition, issuers have had to ‘sweeten’ their offers to incentivize consumers to sign up for their cards,” says Lauren Guenveur, study director with Synovate.

“U.S consumers are not only receiving more offers, they are receiving better offers,” Guenveur says.

So how can borrowers with good credit take advantage competition among banks? “I’m hesitant to give advice on what consumers should or should not do, but I will say this: Issuers are looking for new customers, and if you have good credit, they will do virtually anything to get you to sign up for their card instead of a competitor’s,” says Guenveur. “As we’ve seen already, issuers are increasing the frequency in which they extend intro rates, revamping rewards programs and introducing new products based on consumer feedback, to get you interested in signing up for their card.”

Amid loosening loan standards, meanwhile, cardholders appear to be putting more expenses on their plastic. Mail Monitor shows U.S. card-carrying households are spending $1,559 across all their cards in 2010, up 6 percent from 2009. The average spend for the second quarter totaled $1,627 for all cards in the wallet, a peak surpassed only by record level of card spending set in the third quarter of 2008.

Existing card terms not improving
While the survey said it’s becoming easier to get a new credit card, the news isn’t as good for current cardholders.

  • 16 percent of banks said they lowered credit limits on existing credit card accounts, three times the number that said they raised them.
  • 11 percent said they raised interest rates on new or existing credit card accounts, nearly four times the number that said they lowered them.
  • 11 percent said they were less likely lend to those who don’t meet all lending standards, compared to 3 percent that said they had become more likely.

“Existing cardholders are seeing tighter standards across the board,” says Synovate’s Guenveur. “While the effect is more dramatic for those with poor credit, it has definitely effected those with good credit as well,” she says.

The news was better for business credit card accounts. Seven percent of banks said they had increased the credit limits on existing business credit card accounts, while less than 5 percent had decreased them.

The chart below shows the percentages of banks that tightened specific lending standards for new credit card applications in the second quarter of 2010 and in the second quarter of 2008, when credit tightening was at its peak.The chart also shows the percentage of banks who said they took certain specific actions regarding new and existing credit card accounts.
ActionQ1 2010Q2 2008
For new applications
Loosening overall lending standards7.9%0%
Tightening overall lending standards0%66.6%
For new applications and existing accounts
Lowering credit limits11.4%47%
Raising minimum payments5.7%10%
Raising credit score requirements8.6%57%
Refusing to lend to those who don’t meet all lending standards11.1%50%

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