Americans Are Now Over Extending Their Credit Limits

Banks offered people more credit when Americans were avoiding borrowing. Now they accept them.

A lender’s core business is obviously lending more, especially when interest rates are higher, allowing them to charge more. But it is also a difficult time for banks to grow. Banks have to calculate how many of these loans will default. That is a very difficult thing to do, considering the current economy.

There can be a balance of risk and reward. But banks do not fully control the loans that are granted when it comes to credit cards. The cards are a form of revolving credit that consumers are initially approved for and then can use in the future. At the beginning of the pandemic, people did not use these lines or pay them immediately.

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U.S consumer credit card balances and limits, quarterly

U.S. consumer credit card balances grew 15% year-over-year in the third quarter, the fastest pace in over 20 years, showing us that people are starting to use their credit more available. According to the latest New York Federal Reserve Report, The 21.5% utilization rate, or the percentage of credit card limits represented by balances, was the highest since the first quarter of 2020. It could pick up again during the shopping season.

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Some banks are trying to restrict credit supply to their riskiest customers. Banks could lower customer credit limits, as they did early in the pandemic. The net percentage of banks reporting tougher standards for consumer credit cards was above zero for the first time since late 2020 in the Federal Reserve’s October survey of senior loan officers. In the July survey, banks reported that credit standards for subprime card customers were on the tighter side of the typical range, while they were on the softer side for subprime ones.

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In conclusion, the demand is the one that is handling the cards instead of the offer. The growth in card lending is likely to come from existing customers drawing more from their lines of credit, says Brian Foran, an analyst at Autonomous Research. And even though credit risk measures are rising, they’re only progressing at pandemic-normalized levels at this stage.

Increased utilization may mean that consumers are depleting their surplus cash. This could help shore up consumer health in a mild economic downturn but also a vulnerability for lenders in a deep recession.

How and when they stop using credit cards is a difficult decision for banks.