Hey, We’re Using Credit Again!!

According to multiple reports, consumer borrowing increased in December 2010 signaling a possible end to the worst days of non-existent credit.  Debt incurred across multiple credit product types was strong and it wasn’t just “seasonal.”  This proves that the credit epiphany is largely over hyped.  and, it proves that we WANT to use credit despite what some people are saying.  Here’s why we’re back to our old ways.…

1.  Credit card issuers are becoming more aggressive with their offers.  They’re digging deeper into the FICO credit pool where more profitable customers exist.  This means consumers with FICO scores below 700 are being welcomed back by some lenders, but they’re paying a premium for it since interest rates are at their highest in a decade.

2.  Credit card issuers are now fully compliant with the CARD Act and understand the full cost of said compliance.  They’ve been able to “move pieces around the board” and implement new fees to cover their compliance costs.  The removal of this “unknown” cost means credit card issuers are more comfortable taking on more risk.

3.  The CARD Act not as bad for credit card issuers as originally thought.  Universal Default is still allowed on new purchases, interest rate increases are not impossible, rates aren’t capped, fees aren’t illegal and the card issuer’s ability to manage risk in a nimble way has not been eliminated. As such, credit card issuers will now allow more profitable high risk borrowers back on the books.

4.  Reports of the death of consumer credit addiction have been greatly exaggerated.  Wanting to stay out of debt is very different than actually doing it.  Consumers have been forced into using debit cards instead of credit cards despite the less attractive nature of debit cards.  The December numbers are proof that we’d rather use credit cards than debit cards, if we’re given a choice…and we’re right to do so.

5.  Although the increase occurred during the busiest shopping time of the year (December), it’s the first positive December since December 2007.  This means the increase can’t be attributed completely to “seasonal shopping.”

We know that the demand for credit has outpaced the supply for the past 24 months.  This signals a better balance and a welcome beginning of the end of the credit crunch, especially for low risk borrowers.

John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.

Categorised in: Credit Cards, Debt, Financial, Getting Credit, Money & Identity

This post was written by John Ulzheimer