A recent Mercator report on credit card acquisitions indicated that the US credit card market is at 435 million accounts and that it is likely maxed out for a while. Today’s read calls on a recent Federal Reserve Bank report that indicates our forecast is tracking well.
- America’s craving for credit may get a little more difficult to satisfy, according to a survey of major banks conducted by the Federal Reserve.
- The results of the questionnaire given to senior loan officers at 72 domestic banks indicate these credit card lenders are looking at applicants with a more critical eye, particularly those whose credit score fall in the subprime category (defined by Experian, a leading consumer credit reporting agency, as a score below 670, though there’s no hard-and-fast rule over what qualifies as subprime).
- While the average credit score in America remains at 695, 25 points above what would classify someone as subprime, millennials and younger tend to score lower.
- Forty-one percent of consumers between the ages of 30 and 39 have scores of 621 or lower, and 38% of those 30 and under have scores falling in that same range.
- Any tightening of standards on the banks’ part has the potential to disproportionately affect young people’s ability to get a credit card just as they begin tackling some of life’s bigger financial obligations, such as a paying down their student loans or take on a home mortgage.
According the Fed report on Bank Lending Practices:
- A moderate share of banks tightened standards on credit card loans
- In addition to tightening standards on credit card loans, banks also reportedly tightened several terms on such lending.
- Modest net shares of banks reportedly increased the minimum required credit scores and widened loan rate spreads on credit card loans.
Something I learned a long time ago in this business is that when lending begins to tighten, you’d better batten down the hatches in the collection department. Volumes are sure to bubble up quickly.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group