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|Access to Credit Cards Continues to Expand in Second Quarter|
|Thursday, 03 December 2015|
The number of credit card accounts increased steadily in the second quarter of 2015 as consumer spending continued to revitalize the U.S. economy. New accounts across all risk categories grew 16 percent over the same period a year ago, according to the American Bankers Association’s latest Credit Card Market Monitor.
The December 2015 Monitor, reflecting data from this year’s second quarter, found that the total number of credit card accounts increased to 318 million— the highest reading since late 2008. While account volume growth has been driven by prime and super-prime accounts, the number of subprime accounts has steadily increased since bottoming out in 2013. Meanwhile, among accounts opened in the last 24 months, subprime accounts increased 32 percent compared to the same period a year ago.
“As conditions improve, card issuers have responded by providing credit opportunities for more consumers,” said Jess Sharp, executive director of ABA’s Card Policy Council. “Access to credit is expanding in a manner that benefits both consumers and the broader economy. While the volume of subprime accounts is growing, it remains well below pre-recession levels and makes up a much smaller share of overall new account volume.”
Since the beginning of 2009, the total number of subprime accounts has fallen by 30 percent, while the share of subprime accounts relative to total accounts has fallen from 28 percent to 19 percent.
The New Market Paradigm: Increased Credit Access, Lower Initial Credit Lines
The ABA report also provides additional evidence that card issuers are managing risk by initially extending smaller lines of credit to account holders instead of charging higher interest rates. The average credit line for new subprime accounts slipped 0.1 percent compared to last quarter and is now 1.1 percent below last year’s levels, while credit lines for all accounts declined across all three risk categories.
“Card issuers are finding new ways to meet the needs of millennials and other consumers with limited credit histories, as well as those who may have had difficulties managing their finances after the recession and are looking for a second chance,” Sharp said. “These consumers are increasingly opening new accounts with lower initial credit lines that can increase over time as they demonstrate good use of credit.”
Reliance on Credit Card Credit Remains Low
Card credit outstanding as a share of disposable income was unchanged at 5.3 percent, while the effective finance charge yield (interest charged to accounts as a percent of outstanding credit balances) fell to 11.07 percent, a new post-recession low. In addition, the share of account holders who carry a monthly balance decreased 1.3 percentage points to 41.0 percent, while the share of account holders who pay off their account in full increased 0.7 percentage points to a post-recession high of 29.6 percent. Dormant accounts grew by 0.6 percentage points to 29.4 percent of all accounts.
“Consumers are demonstrating a greater capacity to meet financial obligations and are increasingly using credit cards as a payment tool rather than a short-term financing mechanism,” Sharp said.
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