New Credit Card Accounts on the Rise, Again in 2016

Staff Writer

Not many Americans look back fondly on the start of the 2008 recession. The housing market took a deep dive into the negative, causing a slew of devastating issues for individuals across multiple demographic groups. Depressing returns within the stock market held many hostage, and interest rates were slashed in combination with other government interventions to help stop the economic bleeding. And, for better or worse, limitations on lending were put in place to promote a more responsible financial system from both the borrower and the lender’s perspective.

Now, nearly a decade later, the economic outlook is strong, piggybacking off some of the consumer safeguards put in place during the recession. Interest rates remain low, at least for now, creating fertile ground for individuals looking for affordable financing. However, an interesting trend in lending has some wondering if a repeat of 2008 is on the horizon. According to recent earnings reports released by three large financial institutions, the number of new credit cards issued in the last year has reached – and exceeded – pre-recession statistics.

The Big Three

Buried in the 2016 third quarter earnings reports released by three major financial institutions in recent weeks, a notable increase in new credit card accounts was revealed. Here is the breakdown.

  • Bank of America: 1.3 million credit cards issued in the third quarter with the average U.S. credit card loan balance sitting at $88.2 billion
  • Citigroup: realized a 13% increase from third quarter 2015 in average credit card loans, now totaling $147.8 billion
  • JPMorgan Chase: 2.7 million new credit cards issued during the third quarter with the total credit card balance now at $133.4 billion, a 5% increase from 2015 totals

An analysis of the new revenue data from these three financial institutions alone indicates that more credit is being offered than ever before, even with the recession still in recent memory.

Why the Increase?

The business of extending credit to consumers is just that – a revenue-producing enterprise. With the average credit card interest rate sitting slightly over 15% and four out of every 10 individuals with credit cards likely to carry over a balance from month to month consistently, credit card issuers at raking in substantial profits. Although there are some restrictions in place as to who qualifies for a new credit account, how much interest can be charged, and fees associated with late payments or spending over a credit limit, the revenue model of credit card issuers continues to gain steam, especially in the subprime market.

In addition to wanting to propel profits upward, credit card issuers are well-versed in what consumers ultimately want from their credit accounts: the ability to earn reward points or travel miles, flexibility in redeeming those rewards or miles, and cost-saving perks such as introductory low-interest offers and balance transfer promotions. Card issuers market heavily to these interests, and they make it simple to apply online, by phone, or via mail. With more than 381 million new credit card offers sent to qualified consumers in June of 2016, it’s no wonder that the number of new credit accounts has increased steadily since 2008.

Who’s Getting Credit Cards?

The use of credit as an alternative or supplement to cash and debit cards is rising across most demographic groups, including borrowers with exemplary credit histories and individuals who present more of a risk to creditors. According to a report on the credit card market within the United States, the Consumer Financial Protection Bureau states that nearly every adult in the country holds at least one credit card, and nearly half carry more than one card in their wallet consistently. Borrowers vary based on income, credit history, and other outstanding debts, but one thing is clear – credit cards are in use more than ever before.

One of the concerns that goes hand in hand with an increase in new credit cards issued by banks and other organizations is that the population relies too heavily on plastic as a means to get by. Today, more than $703 billion in outstanding credit card debt exists, which, out of context, represents a red flag. However, the Consumer Financial Protection Bureau also reports only a slight increase in credit card delinquency rates in the past year, most of which occurs within the subprime borrower group. While there may be reason to scale back issuing as much debt to high-risk borrowers, the state of the credit card union remains relatively strong.

Credits cards can be a helpful financial tool for consumers who want to extend the repayment time on a major purchase or accumulate valuable rewards that can be used for travel, discounts, or the almighty cash in hand. However, leaning too heavily on credit cards leads to a deep hole of debt that can be a challenge to get out of due to the cost of carrying credit card balances over from month to month. Fortunately, for those who are willing and able to spend – and repay – in a responsible way, a countless number of credit cards are available to meet various needs.

LendEDU is a content partner of the Starkville Daily News providing personal finance news and commentary.

 

 

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