It’s been 10 years since the Great Recession, and many Americans are still dealing with the financial aftermath. Some consumers have spent a full decade trying to pay off debt, rebuild their credit score and learn new ways to manage their money.
What does the credit card market look like now? Did America learn its lesson, or are we falling back into old habits?
The Consumer Financial Protection Bureau just released their biennial credit card market report. The report analyzes the overall credit card debt, credit line usage, credit card applications and more.
When it comes to credit lines (the amount of credit available, used or unused), Americans have access to $4 trillion. This is below the $4.4 trillion in credit lines before the Great Recession, but those numbers have steadily risen over the last decade.
Having a large credit line isn’t necessarily bad, as long as Americans are able to manage their debts properly. Credit card debt has increased 9% over the last two years, but cardholders on average have fewer credit cards now than they did ten years ago. A higher value of credit lines and a lower number of credit cards means Americans are getting approved for larger credit lines per card, indicating a positive turn in credit scores and payment histories.
After the Great Recession, secured credit cards saw a major increase. Secured cards function like traditional credit cards, but instead of the issuer providing a line of credit, the cardholder must put down a deposit. For instance, if you want a secured card with a $2,000 limit, you would have to submit a $2,000 deposit. Then you use the card as usual and make payments every month. You can get the deposit back once you cancel the card, minus any fees you have incurred on the account.
Secured cards are used to build a person’s credit score. You are essentially paying some fees and perhaps some interest for the chance to prove you can handle a credit card. After the Great Recession, many Americans experienced a significant decline in their credit scores. Secured credit cards were a saving grace for many. Secured cards currently account for 5% of credit card originations, and the number of new cards increased 7% from 2015 to 2016. These cards are particularly popular in the subprime market, representing 25% of all credit card originations for applicants with a “deep subprime score” or no score at all.
Overall, Americans seem to have learned from their past mistakes. Consumers are taking steps to maintain or improve their credit score while avoiding pre-recession debts. As long as cardholders continue to monitor spending levels and not abuse the credit available, another credit card crisis could be prevented.