Banks trust cardholders more as spending increases

Banks are trusting users with reliable credit scores more as people spend more yet carefully manage their debt. That’s according to the American Bankers Association’s credit market report from the fourth quarter 2017.

Following a strong holiday season, monthly purchases increased by 3.9 percent for prime accounts and by 5.1 percent for super-prime accounts, but fell by 3 percent among subprime accounts. Since 2015, super-prime and prime account spending has increased by 19 percent and 16 percent respectively, but only by 2.9 percent for subprime accounts.

Consistent with traditional credit trends after the holidays, outstanding credit from disposable income increased 13 basis points to 5.3 percent in the fourth quarter. This measure is essentially what it was in late 2011 and early 2012, well below pre-recession levels, the ABA’s report stated.

“Consumers have worked hard to ensure credit card debt remains at manageable levels,” said ABA Card Policy Council Executive Director Jess Sharp. “Even as spending levels increase, credit card debt as a share of disposable income remains low by historical standards.”

Across all risk tiers, credit lines rose. Among new, average-prime and subprime accounts, credit lines increased to levels not seen since 2010, and super-prime credit lines now exceed 2008 levels. Credit lines among prime and subprime levels, however, are still well below where they were after the recession, when prime accounts were 26 percent higher and super-prime accounts were 23 percent higher than they are now.

“The strong labor market is helping to drive consumer confidence levels near all-time highs,” Sharp said, “and card users are responding by judiciously expanding credit access to new and existing customers.”

The rate of new credit card accounts opening is slowing, but existing account activity is rising, according to the report.

For the first time in five years, the number of new credit card accounts, or those opened in the previous two years, declined compared to the previous quarter, according to data from October through December, 2017. The total number of open credit card accounts increased in the fourth quarter, but at the slowest rate in almost three years.

Fourth quarter data showed that among existing credit card accounts, activity slightly rose. As dormant accounts fell 0.6 percentage point, the users who pay their monthly balance increased by 0.4 percentage points to 29.5 percent. Users who carry a monthly balance increased by 0.3 percent to 44 percent of accounts, which is the same level it was at the beginning of 2017.

“The economy is performing well,” Sharp said, “and consumers are benefitting.”