The number of Americans with credit cards now pars levels not seen since before the 2008 recession. In a recent report published by credit reporting agency TransUnion, about 171 million individuals have access to credit cards at the end of the first quarter of 2017, surpassing the 2005 record of 162.5 million. Compared to 2010, there are 22 million more consumers who have access to a line of credit.
What caused the increase?
Experts attribute this rise in credit access to the easing of qualifications among credit line lenders. As a result, there are about 16.3 million people in 2017 who are given credit access despite being high-risk borrowers, or having less-than-stellar credit scores.
The rate of growth for the subprime category sits at 8.9 percent in the first quarter of this year – faster than any other segment of the borrower market.
Creasing some foreheads
This deepening of the subprime pool is worrying some experts. Some advise lenders to pull back and put a cap on the red ink before it spills, as default rates and delinquencies increase. After all, they seem to be treading familiar tracks that have once have only led to a devastating aftermath.
A way to lessen the risk among lenders, according to TransUnion’s senior vice president, is by giving high-risk or subprime borrowers lower credit. And indeed, those who are considered to be in the prime category and below have seen a drop in credit availability compared to the first quarter of 2010. Now, for example, subprime borrowers can tap $1,069 less in available credit compared to seven years ago.
This is in stark contrast to what happens on the other end of the credit spectrum where top-tier credit holders or those who have excellent credit scores now have access to more credit. In average, they are now lent $4,195 more than they were back in 2010.
Are the current state of things normal? How will this rising trend in subprime borrowers impact the market? Would these borrowers be able to handle their finances, despite possible difficulties?
Credit card delinquency rate increased by 0.2 percent from 1.5 percent in 2014 to 1.7 percent this year. This might seem intriguing at first, but not as staggering as the 4 percent delinquency rate back in the pre-recession days.
Can the current risk measures in lending and the strong economy deter any possibility of a disaster? This is a complicated question as the answer can only be extracted from a convergence of diverse economic factors. But the numbers – and the signs we’ve been familiar with – will definitely tell us.