Credit Card Debt is Rising!

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Americans have created $1.01 trillion in debt (primarily credit card debt) according to the Federal Reserve. That’s the highest figure since the financial crisis in 2008. Credit card is now the preferred method of payment among Americans, edging out debit cards and cash, according to a new study. It’s the first time credit cards claimed the top spot in the six years of the study. Why have credit cards grown more popular? Here are some insights as to why.

Ownership of credit cards is at a 10-year high. Banks are issuing more credit cards to people with bad credit scores, but they’re tightening their purses in a way that limits the utility of those cards. Specifically, they’re decreasing the average credit limit—the maximum amount an account can carry—for people with credit scores below 600, the “subprime borrowers”. A key driver for that reduction has been an increase in card delinquencies. These lower credit limits can also push down the credit scores of even new card holders who will be diligent in making payments on their card. This is because smaller limits make it more likely that consumers will utilize more of their available credit.

For several years, prepaid and stored value cards have been among the hottest growth stories in the payments landscape. Nearly 10 billion purchases were made using these cards in 2015, an increase of more than 67% since 2009. Many times, however, users won’t reload prepaid cards, discarding them once their initial value is depleted, and this has long been a barrier to their usefulness. This poses business model challenges, not only because of the increasing expense of manufacturing prepaid cards but also because of the lost opportunity to nurture long-term relationships with stored-value card holders. Until recently, crediting mobile check deposits to prepaid card balances was deemed too risky, and immediate funds availability was out of the question. However, new technologies now allow for real-time decisioning about holds on these deposited items.

Source: https://www.forbes.com/sites/billhardekopf/2017/06/30/this-week-in-credit-card-news-credit-card-debt-keeps-rising-why-lower-credit-limits-can-hurt-you/#75f740e1391c

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