Recent Practices Show Promising Results for Credit Card Users
Several studies released during the past two weeks provide some insight into what has taken place in the credit card industry during 2009. The studies show that some of the practices instituted by issuers may have helped the credit card companies turn the corner on their recent financial struggles.
Two common practices that have occurred in 2009 are the cutting of credit limits and the tightening of lending standards.
A FICO study shows how widespread the reduction of credit limits has been. Issuers cut credit limits for approximately 58 million credit cardholders. 24 million customers had their limits reduced despite a good credit history. For these 24 million, the average reduction in the credit limit was $5,100, more than double the reduction that FICO observed for comparable consumers six months earlier.
According to the Federal Reserve's quarterly Senior Loan Officer Opinion Survey on Bank Lending Practices, lending standards are still tighter than average and none of the banks in the survey have loosened the lending standards or raised limits.
"It is still difficult for anyone with less than good credit to get a credit card loan with a low rate," said Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook.
Moody's Credit Card Index shows that cutting credit limits and tightening lending standards may be getting some results for issuers. In July, the charge off rate dropped to 10.52% from 10.76% in June. The overall delinquency rate declined to 5.73%, the lowest level of 2009. Moody's Index also shows that the payment rate in July was 17.43%, the highest rate since October. The payment rate measures the average amount of principal that cardholders repay each month as a percentage of total outstanding principal.
A TransUnion report shows that credit card payments 90 days or more overdue amounted to 1.17% in the three months that ended in June, down from 1.32% in the first quarter.
Two common practices that have occurred in 2009 are the cutting of credit limits and the tightening of lending standards.
A FICO study shows how widespread the reduction of credit limits has been. Issuers cut credit limits for approximately 58 million credit cardholders. 24 million customers had their limits reduced despite a good credit history. For these 24 million, the average reduction in the credit limit was $5,100, more than double the reduction that FICO observed for comparable consumers six months earlier.
According to the Federal Reserve's quarterly Senior Loan Officer Opinion Survey on Bank Lending Practices, lending standards are still tighter than average and none of the banks in the survey have loosened the lending standards or raised limits.
"It is still difficult for anyone with less than good credit to get a credit card loan with a low rate," said Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook.
Moody's Credit Card Index shows that cutting credit limits and tightening lending standards may be getting some results for issuers. In July, the charge off rate dropped to 10.52% from 10.76% in June. The overall delinquency rate declined to 5.73%, the lowest level of 2009. Moody's Index also shows that the payment rate in July was 17.43%, the highest rate since October. The payment rate measures the average amount of principal that cardholders repay each month as a percentage of total outstanding principal.
A TransUnion report shows that credit card payments 90 days or more overdue amounted to 1.17% in the three months that ended in June, down from 1.32% in the first quarter.
