As oil prices soared and inflation intensified with Russia’s invasion of Ukraine in February, Americans responded by opening new credit cards.
Many of them.
New data from credit reporting agency Equifax shows banks issued 18.6 million new credit cards in the first three months of 2022, a jump of around 28% from the same period last year.
This is an escalation of an ongoing trend. Lenders have been scrambling for borrowers with post-pandemic money since the release of COVID-19 stimulus checks. The problem is that Americans are emptying those coffers fast — and the prospect of shiny new lines of credit could tempt more people into debt by spending their savings.
In 2021, Americans opened a total of 73.5 million new credit cards. A little math says that if people keep opening new cards at today’s rapid pace, we’ll eclipse last year’s figure by around 1 million.
All those new cards mean a lot more lines of credit going on. In total, all of these new cards added $91.2 billion to the country’s collective credit limit, an increase of about 60% year-over-year. The average credit limit for new bank cards opened in March was $5,049, up about 30% from March of last year.
Additionally, a larger slice of that pie goes to subprime borrowers, defined as borrowers with VantageScore credit scores below 620. Although subprime borrowers represent a tiny slice of the market in absolute dollar terms, their credit limits tend to be much lower. than those of people with higher credit ratings – banks’ willingness to lend to them increases. In the first quarter of 2022, Equifax found that the overall subprime credit limit total jumped about 43% from the same period a year ago.
And people use that credit right away.
According to data from the Federal Reserve, revolving credit (generally considered a proxy for credit cards in that it refers to a loan agreement that does not have a predetermined end date) grew at a rate annualized around 20% in April. It also suggests that people’s appetite for borrowing is growing as the prices of all kinds of everyday items continue to rise.
Experts say credit indicators are not yet showing early signs of trouble. At the end of March, overall credit utilization hovered just below 20% – well within the 30% range that credit experts use as a rule of thumb when advising borrowers on how much credit they have. available that they must exploit at all times.
Going forward, the looming concern is that higher limits will ultimately cause people to take on more debt to keep up with inflation – debt that will become increasingly expensive to repay as the Fed continues to hike. interest rates in its attempt to stifle inflation.
If you’re considering opening a new credit card, consider a card that offers a 0% interest rate for an introductory period, as long as you’re confident you can pay off the accumulated balance before that rate ends. of interest. If you plan on running a balance, get a card with the lowest interest rate you can find.
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