Lenders began withdrawing credit card offers last year over concerns that the pandemic-driven economic shutdown would lead to a sudden rise in unemployment and defaults. In some cases, they unilaterally closed existing accounts. But the wave of defaults never materialized. In fact, consumers’ credit card debt did not go up as the pandemic swept the country.
The TransUnion report found that consumers are performing well one year since the pandemic began, as serious delinquency rates remain lower. At the same time, new credit card accounts have risen from their COVID-19 lows.
‘More prudent measures’
As unemployment rose to double-digit levels last year, most lenders tightened their standards when issuing personal loans and credit cards. That caused consumers to reduce their spending. The report shows that unsecured personal loan originations dropped from 3.9 million in the first quarter of 2020 to 2.6 million in the April to June quarter. Credit card originations declined at an even faster rate – from 15.5 million to 8.6 million in the same timeframe.
“Consumers and lenders alike took more prudent measures with their credit use,” said Matt Komos, vice president of research and consulting at TransUnion. “Buoyed by government stimulus programs, many consumers used their benefits to remain current on accounts.”
Consumers maintained their improved habits into the first quarter of 2021. Credit card balances have continued to decline, with total balances dropping to $688 billion from $814 billion in the first quarter of last year. Average consumer credit card debt per borrower dropped to $4,791, the lowest level since at least 2009 when TransUnion first began measuring this variable.
New credit card accounts fell nearly 18% year-over-year across all credit risk tiers, with average lines on new accounts declining 28% in the same period. Earlier this month, the Wall Street Journal reported that the percentage of Discover Card balances paid off at the end of the first quarter was the largest in two decades.
On-time payments
Even more startling, Capital One reported that half of the credit card balances on its books at the beginning of March were paid off completely by the end of the month. In addition to paying off debt, consumers also paid their bills on time, a key factor in improving credit scores.
“Delinquencies can’t get much lower than where they are now, but if your loans keep shrinking, your revenues come down [and] margins will get worse,” Discover CEO Roger Hochschild told the newspaper.
The result of all this is that lenders have resumed their aggressive marketing of credit card offers. Consumers should consider the offers carefully before acting, considering fees and perks.
To help with the decision, check out ConsumerAffairs’ credit card guide, which includes thousands of verified reviews.