The most recent data from the Federal Reserve Bank of New York indicates that credit card applications increased in Q3 while other forms of consumer credit fell. In the Survey of Consumer Expectations, NY Fed reports data through October 2023:
- Current application rates for any type of credit remain below pre-pandemic levels for those with credit scores below 680 but are higher for those with credit scores over 760.
- Reported rejection rates on credit applications rose slightly overall but declined for new credit card applications.
- The strength in credit card demand and access coincided with the record growth in credit card balances over the past year.
Put Aside Risk Management for a Moment and Think of the Consumer
The degree to which credit card issuers should approve more accounts, in the wake of rising interest rates, inflation, and a looming recession is not today’s topic. Credit card delinquencies are currently low, but in August, they ticked up slightly, from 1.66% to 1.81%. We expect to see that metric rise to 3% in mid-2023, but today’s article is about how more credit cards are getting approved, not whether issuers should lend more.
- Looking ahead over the next 12 months, households anticipate they will be less likely to apply for an auto loan, mortgage, or mortgage refinance loan but report a higher average likelihood of applying for a credit card or credit card limit increase.
- Consumers expect some easing in credit standards, reporting slightly lower average perceived likelihoods of a future
- credit application being rejected, conditional on applying over the next 12 months.
And Credit Card Companies Approve More Customers
Not only are applications up, but so are credit card approval rates.
- The average rejection rate for credit card applications during 2022 declined by 2.4 percentage points to 18.5%.
- The reported rejection rate for credit card limit increases rose slightly to 35.3% in 2022 from 32.3% in 2021.
Just in Time for the Holidays
Plastics approved in October should now be in the consumer’s hands. With prices rising, they will need the cards. The Farm Bureau reports that the average cost of a Thanksgiving dinner for ten will be $64.05 in 2022, up from $53.31 in 2021 and $46.90 in 2021. That seems low and probably excludes the wine. Still, they draw their data from the USDA Agricultural Marketing Service data, which tracks turkey prices for whole turkeys and particular cuts, ranging from drumsticks to ground turkey.
Thanksgiving will be behind us in a few days. We will know by then whether the Cowboys or Giants will win, as well as the Bills and Lions. I would go with Dallas and 7 points and Buffalo with 8 points, but that is another story for another day.
The story here is credit card approvals. And expect those new credit cards to get a workout with Christmas, Diwali, Hanukkah, Kwanzaa, or whatever holiday you choose to celebrate.
And 2023? You can see Mercator’s industry Outlooks here.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group.