Money may be more available to the average citizen as banks raise their caps on loans, borrowing limits, and financial packages for all clients. Recently, and for the first time in a few years, people have more money in their pockets and in their bank accounts. Banks are responding by taking slightly bigger risks, which is good news to those who have faced trouble with damaged credit, late payoffs and similar financial tarnish.
But not everyone is pleased by the news. Some worry that the move is a potentially insensitive attempt, as part of a pattern, to create new leads for business—a move that will leave most carriers with debts they cannot pay off. Interest rates are low (although “poised to rise”), and the labor market is healthy, making it easy for banks to take a more daring stance.
Some speculate that engorging the market with loan money will lead to banks making demands that simply cannot be met. In February, credit card companies reportedly accepted more than three-fourths of the appeals for loans, putting a lot of money in the hands of eager clients that show promise of paying off debts.
Those considered prime-quality candidates for loans at a mid-range credit level are now seeing a 90% approval rating for loans while subprime clients still suffer to get the loans they need. Banks maintain high interest rates for lower-level candidates, and many who have taken out loans are already struggling to juggle the many accounts and payments on their plate.
As a result, subprime clients are increasing demands for temporary checks to help pay off standing bills. In recent surveys, subprime clients were shown to have taken on the most loan-related debt. For this, banks remain somewhat inflexible with borrowing policies and customers who miss credit card payments or take years to pay off debt in minimal increments certainly do not entice banks to loosen their standards.
In a recent report, creditcards.com found that interest rates on new credit cards offers are the lowest they have been in the past 5 months. The current 15 percent interest rate has fallen from its two week streak of 15.09 percent. Credit card companies have also shown more leniency towards borrowers by giving them a second chance to to receiving larger credit limits, despite their credit pasts.
Late payments on credit cards have also decreased in recent years. This particular consumer trend is due to a widespread knowledge of understanding the consequences bad credit can have on your future, as well as stricter regulations on who is able to apply for a credit card. In addition to these changes, credit card companies have also developed scoring methods that can indicate which customers will have delayed payments, and which ones will pay on time.
The improvement of our economy is another factor of why consumers are now applying for more credit cards and consciously trying to improve their credit. Despite the willingness to purchase more big ticket items, the fear of acquiring additional debt is still present among Americans. As of late September 2014, total debt went up to 1.30 trillion dollars, including car loans, mortgage, and student loans. These statistics show that debt is present among diverse collective of age groups and communities.
The increase in debt has a positive correlation with the amount of credit cards that were opened this year. Since January 1st, the Federal Reserve’s reported a $ 22 billion increase in credit card balances across the board. The future of credit cards depends on a few factors, starting from fluctuations in our economy, the uncertainty of the job market as well as constantly increasing college tuitions. In turn, this will prompt credit card companies to respond accordingly by changing interest rates and raining credit card limits.
A recent article in the New York Times delves into the changing trends among the younger generations and their dissociation with credit cards and the crippling debt that follows. FICO, one of the largest analytic software companies in the US, conducted a study aimed at understanding the decline of credit card usage among the ages of 18-29. They found that from 2005-2099 there was a 7% decrease in credit card purchases. The study also recognized that older generations are relying less on credit cards, but not with such drastic numbers.
These changes in consumerism have contributed to reductions of the average credit card payments, which dropped from $3,073 to $2,087 in late October of 2013. Despite these changes in credit card debt, this generation is experiencing a devastating increase in loans, which have almost doubled in the past decade. Another reason this age group prefers to use debit cards which make it easier to face for them to face their debts and live comfortably.
There are a few reasons behind the declining trends of credit card usage. In 2009, the introduction of the Credit Card Accountability Responsibility and Disclosure Act was introduced to the public, and it added amendments requiring applicants to have a stable income stream, which in turn made it more difficult for younger people to become approved for credit cards.
Spending habits among younger generations have also changed due to the Great Recession, and their inability to work full time after finishing school. Financial burdens, such as loans and increasing living standards across the US have made young consumers become aware of the overall economy struggles and their personal financial shortcomings.
Many financial analysts believe that without credit cards this age group will have a difficult time building credit and purchasing future big ticket items such as, a car or a home. However, for those who still cannot afford credit cards, there are other ways to acquire credit. For example, making your regular loan payments on time, and signing up for bills in your own name can help you slowly create a solid credit history. These simple exercises can place students and recent graduates in a good place with their future finances, without rushing into unnecessary credit card debt.