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The credit market is growing; how will it affect consumers?

A new TransUnion study shows continued expansion this year amid economic strength

Summary

As the credit market continues to gain strength, it will affect consumers and their credit cards. Find out what kind of changes experts think might happen.

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The credit market is strong, thanks in large part to low unemployment rates and continued income and GDP growth.

And it will continue to expand in 2019, according to TransUnion’s Q4 2018 Industry Insights Report.

Card issuers have provided much more financial inclusion, and more people than ever now have credit cards — in fact, that number hit a record 178.6 million at the close of 2018.

It’s an interesting time in the credit card market. What will happen as the market continues to gain strength? Will all consumers benefit, or will some see negative effects on their finances?

Keep reading to find out what experts predict.

TransUnion’s findings

Four million additional consumers gained credit card access in 2018, according to TransUnion’s report.

The primary growth driver was a 4.3 percent year-over-year increase in subprime borrowers — those with credit scores ranging from 580 to 669. In addition, there was a 3.1 percent year-over-year increase in prime plus and super-prime borrowers — those with credit scores from 680 to 739 and 740 and above, respectively.

Should the credit market continue gaining strength, TransUnion projects account originations and consumer balances will increase for most credit products, while delinquency rates will probably decline, or at least remain constant.

Meanwhile, serious delinquency rates (delinquent payments are those that are late 90 days or longer) increased to 1.94 percent, but still remain “well below recession-era levels and are near the ‘new normal’ mark.”

Paul Siegfried, senior vice president and credit card business leader at TransUnion, said the driver of growth in credit card ownership was increased consumer confidence.

And, he added, “The reason the delinquency rates rose was because the composition of the new accounts included more subprime lenders.”

See related:  7 ways to attract targeted credit card offers

Doom and gloom

David Reischer is an attorney and CEO at LegalAdvice.com. He feels the credit market’s increasing strength is going to end in disaster.

Reischer said the strength of the credit market right now would only serve to further bind consumers to the “corrupt Federal Reserve monetary system.”

“This will happen in the form of increased loan amounts of all types, including credit cards, student loans, auto loans and mortgage loans,” Reischer said.

And, he feels, the strength of the credit market right now will serve only to make it impossible for consumers to continue to pay exponentially, ever-increasing debt when the inevitable next recession arrives.

A slightly more positive outlook

The credit market strength will cause significant growth in the credit card industry, as cards continue to be the most popular credit product in the U.S., according to Eric Anderson, co-founder and organization development manager of QuotesAdvisor.com.

According to the American Bankers Association’s latest quarterly Credit Card Market Monitor report — released in January 2019 – there are 368 million open credit card accounts in the U.S.

And that number will continue to grow.

But that means credit card debt will also grow, as more and more consumers will turn to plastic money, Anderson said. The problem is that if they spend a lot on interest to pay down their mounting debt, they will not have enough money to make new purchases, he added. Credit card APRs have risen to record levels in the wake of the Fed’s recent rate hikes, and more increases could come this year.

“In my own personal experience, I have noticed that the number of small personal loans has consistently decreased – by 14 percent – with the steady rise in the number of new credit card issues. This trend seems to be the result of people wanting to use credit cards — which do not accrue interest if they pay off the balances each month — instead of taking out loans, which always accrue interest,” Anderson said.

See related: 8 things you must know about credit card debt

A range of ramifications

Martin H. Lynch, director of education at Cambridge Credit Counseling, said there will be a natural increase in the number of credit card applications. And that can signal two things: increased confidence due to improved creditworthiness, or an applicant’s desperate search for additional credit to borrow their way out of debt.

If the economy continues to improve into the spring, and if there are clear signs of strengthening – such as good unemployment numbers and housing startups – that should result in a lot more card openings.

Lynch doesn’t think the strong credit market will compel more lenders to get back into the cards business.

If the economy is struggling, he feels there wouldn’t be much of an uptick there, other than for credit products aimed at high-score consumers.

“If, however, the economy is on better footing, but housing is just OK, you could see some new players looking to expand or diversify their lending portfolios,” Lynch said.

He also expects there will be a continued proliferation of products on the market if it stays strong.

“This is the most likely scenario, in my mind, since the business is getting more competitive every day,” Lynch said.

Today, there are more innovative and attractive rewards programs than ever, making it a buyers’ market for consumers – that is, for consumers who would actually benefit from the perks being offered

The downside to the credit market gaining more strength?

According to Lynch, if the economy continues to improve, we’ll probably see consumers get into deeper financial difficulty.

That’s because increases in consumer confidence due to strong economic signals often trigger poor decisions. Unemployment numbers are good, so consumers don’t worry about their jobs, and they tend to borrow more and save less.

“We’ve already seen this in today’s report about the number of car loans in default,” Lynch pointed out in reference to the Feb. 12, 2019, Quarterly Report on Household Debt and Credit.

Although it sounds counterintuitive, Lynch said, recessions generally trigger good consumer choices.

People become concerned about their employment – and what might happen if they lost their jobs. And that means that typically they start to save more and pay down their debt.

As a result, their credit scores improve, and they’re in better shape when credit loosens up and the recession fades into the rearview mirror.

“Some jump back into the game and get hurt, while others learn their lesson from the recession and become more conservative borrowers moving forward,” Lynch said.

The wrap-up

The credit market has been growing substantially, supported by strong wage and employment growth. Should it continue on its upward trajectory, where will that leave you?

Will you go deeper into debt?

Don’t let strong economic signals lead you to make bad decisions regarding credit, such as opening more cards than you need, charging more than you can pay off, making late payments or missing payments altogether.

Instead, let moderation be your guide and build toward a strong financial future that will sustain you regardless of what the market does.

What’s up next?

In Research and Statistics

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If an unpaid debt was charged off by your credit card issuer, it will stay on your credit report for seven years, and you still have to pay it off. However, if you believe it’s an error, it’s critical to file a dispute with the credit bureaus.

Published: April 11, 2019

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