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Americans ramp up credit card usage as high prices continue to bite


hegemony
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No wonder we cannot escape economic fiascos...they review and revise downwards by roughly 10%

 

"The latest Federal Reserve data on outstanding consumer credit, released Tuesday afternoon, comes after March's record increase of $52.4 billion. That figure has since been revised downward to $47.3 billion."

 

$5.1B is not simply a rounding error.  That is someone screwing things up miserably. 

 

The revolving debt number is somewhat interesting, but we will never get a breakdown of the APR that much of it sits at or what percentage is being paid at minimums versus chunks far above that but that do not reach statement balance.

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2 hours ago, centex said:

No wonder we cannot escape economic fiascos...they review and revise downwards by roughly 10%

 

"The latest Federal Reserve data on outstanding consumer credit, released Tuesday afternoon, comes after March's record increase of $52.4 billion. That figure has since been revised downward to $47.3 billion."

 

$5.1B is not simply a rounding error.  That is someone screwing things up miserably. 

 

I assume that in reporting 4-5 weeks after the end of the month, not all of the data has rolled in.  Keep in mind that the estimate at the heart of the report is total revolving debt, not the estimated monthly change.  As such, the revision represents only a 0.5% downward revision in total revolving debt.

 

2 hours ago, centex said:

 

The revolving debt number is somewhat interesting, but we will never get a breakdown of the APR that much of it sits at or what percentage is being paid at minimums versus chunks far above that but that do not reach statement balance.

 

True, but I'm willing to bet that at least 50% of the "persistent" debt sits at 14%-22%, with another 25% at rates above that.  (I'm likely erring on the "optimistic" side).  Bottom line, you know that 0% bt debt transforms into debt bearing an attractive rate (bank's perspective) with reliable confidence.

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The article openly states that they have no clue if any of the consumers are actually carrying a balance monthly or paying off the cards. It states that it could merely be a sign that consumers are using the cards in place of cash at the terminal and not a sign of trouble.

 

They also speculate that those who are in a "higher economic status" are purchasing luxury items while those in a lower socio-economic status are using cards to buy "essentials and necessities".  Well DUH.  If the economic picture gets worse and large employers go back to job lay offs like 2008 then you are going to see an entirely different credit card usage like that time and defaults on a regular basis.  For now there are plenty of jobs even if it may not be the one the consumer wants or prefers but there are ways to earn money.  Credit card usage may not be a bad sign just yet.

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On 6/10/2022 at 6:57 AM, CreditSucksNot said:

If the economic picture gets worse and large employers go back to job lay offs like 2008 then you are going to see an entirely different credit card usage like that time and defaults on a regular basis. 

 

Speaking of The Bad Old Days, I am wondering if we are going to start seeing card issuers chasing balances again.  I do not know about anyone else, but that is one practice from 2008 I will not soon forget. 

 

(Go ahead, laugh, but I could swear I still hear the echoing screams of luckless consumers who were being balanced-chased during the Great Recession.)

 

To my mind, more than anything else, balance-chasing and other forms of CLDs are going to be the incontrovertible signs we are knee-deep in the manure.

 

 

 

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1 hour ago, Flashman said:

Speaking of The Bad Old Days, I am wondering if we are going to start seeing card issuers chasing balances again.  I do not know about anyone else, but that is one practice from 2008 I will not soon forget.

 

The lesson to be learned from the "great recession" is to proactively increase CL's when you least need them and to posture your accounts so that it's unlikely you'll ever use more than 30% of the limit.

 

While I in no manner am faulting those who were balanced chased in 2008-2011, it was something largely limited to those who were using in excess of 50% of their credit lines (more likely 80%+).

 

I would hope that anyone paying attention in 2008 has used the past dozen years to shore up their credit lines, averting the likelihood that they'll pose high utilization in the future.  (Of course, there are a lot of new entrants to the personal credit line market since 2008, so when the spit hits the fan, I'm sure we'll see a repeat.)

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7 hours ago, Flashman said:

 

Speaking of The Bad Old Days, I am wondering if we are going to start seeing card issuers chasing balances again.  I do not know about anyone else, but that is one practice from 2008 I will not soon forget. 

 

(Go ahead, laugh, but I could swear I still hear the echoing screams of luckless consumers who were being balanced-chased during the Great Recession.)

 

To my mind, more than anything else, balance-chasing and other forms of CLDs are going to be the incontrovertible signs we are knee-deep in the manure.

 

 

 

my total "available" revolving credit doubled during the great recession...

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38 minutes ago, hegemony said:

my total "available" revolving credit doubled during the great recession...

 

Would you care to conjecture what caused the credit companies to extend you more credit at such a time?

 

(Was it as straightforward as, say, your having particularly low utilisation on your tradelines?)

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29 minutes ago, Flashman said:

 

Would you care to conjecture what caused the credit companies to extend you more credit at such a time?

 

(Was it as straightforward as, say, your having particularly low utilisation on your tradelines?)

 

I assume they saw me as a good risk. I don't think there was any magical about my profile/reports. It was also the case I asked for the credit and in some cases was willing to prove income via pay stubs or 4506-t.

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25 minutes ago, Flashman said:

 

Would you care to conjecture what caused the credit companies to extend you more credit at such a time?

 

(Was it as straightforward as, say, your having particularly low utilisation on your tradelines?)

Lending still goes on even in bad times...but it requires BEING credit-worthy.  There is no inherent right to be granted credit.  If the consumer's profile speaks to being a good risk, then they will get credit. 

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43 minutes ago, centex said:

If the consumer's profile speaks to being a good risk, then they will get credit. 

 

That is true, and a fascinating subject, hence my question.

 

However, I am afraid that, in my case, the real fascination lies in what the credit companies suddenly consider a poor risk once panic sets in and they start belatedly closing the metaphorical barn door when a downturn hits (à la 2008).

 

Someone else may recall the exact details, but my all-time favourite was a chap who resided in Beverly Hills (an area not known for its abject poverty) and had an Amex account.  After being told he was now a former Amex customer, he went back through his credit report to try to work out just why it was Amex ended their relationship with him so abruptly.

 

It seems the only thing he could come up with was a single late payment roughly 28 pages ago in his credit report.

 

According to him, that single late payment from so long ago was enough to frighten Amex into giving him the heave-ho.  While I am not sure I believe the story entirely, it would not surprise me to learn that his guess was correct and Amex really did close his tradeline for that exact reason.

 

 

 

 

 

 

 

 

 

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17 minutes ago, Flashman said:

 

That is true, and a fascinating subject, hence my question.

 

However, I am afraid that, in my case, the real fascination lies in what the credit companies suddenly consider a poor risk once panic sets in and they start belatedly closing the metaphorical barn door when a downturn hits (à la 2008).

 

Someone else may recall the exact details, but my all-time favourite was a chap who resided in Beverly Hills (an area not known for its abject poverty) and had an Amex account.  After being told he was now a former Amex customer, he went back through his credit report to try to work out just why it was Amex ended their relationship with him so abruptly.

 

It seems the only thing he could come up with was a single late payment roughly 28 pages ago in his credit report.

 

According to him, that single late payment from so long ago was enough to frighten Amex into giving him the heave-ho.  While I am not sure I believe the story entirely, it would not surprise me to learn that his guess was correct and Amex really did close his tradeline for that exact reason.

What we learned in ALL of the previous financial downturns is that profile matters...it goes back to the days when Character and Capacity MATTERED.  Too many people today believe that a three-digit score is all they need, and that has NEVER been the case, no matter WHAT bull the bureaus like Experian try to upsell. 

 

Some issuers, like AXP, care about spend and LOTS of it.  If you spend enough, they overlook some warts.  If you suddenly stop spending, they get concerned.  This is ALSO why some of us wondered how they were going to respond in the early days of 'rona since some of us were seeing spending drop down as low as the sub-$1K range, which was NOT our normal pattern.  But since the government was hindering travel by closing things down, that meant that hotel and other travel spend dropped substantially...while I could have GOTTEN to Vegas, there wasn't much I could do once there precisely because of shut-downs.  Ditto other casino destinations.  Even now, I struggle (first-world struggle) to find spend to get me close to pre-pandemic levels. 

 

Those in other countries (am guessing you are UK or prior UK from spelling and grammar) where APR has historically ALSO been much higher and credit is not as frequently used, I would expect a tighter leash. 

 

Given that we KNOW the APR will go up in the US as the Fed increases rates (about damned time BTW), I would ALSO not be surprised to see an increase across many lenders to a minimum of 2% of the balance plus accrued interest...the minimums are too low as things stand.  Sadly, even going to 2% will see increased defaults, which the systems will weed out organically without impacting responsible users of credit...

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9 hours ago, Flashman said:

 

Speaking of The Bad Old Days, I am wondering if we are going to start seeing card issuers chasing balances again.  I do not know about anyone else, but that is one practice from 2008 I will not soon forget. 

 

(Go ahead, laugh, but I could swear I still hear the echoing screams of luckless consumers who were being balanced-chased during the Great Recession.)

 

To my mind, more than anything else, balance-chasing and other forms of CLDs are going to be the incontrovertible signs we are knee-deep in the manure.

 

 

 

 

I have seen a few threads recently that were from posters (on several sites) that were being balance chased.  Most were maxed out and were experiencing balance chasing for the first time and unfamiliar with it.

 

I have never been balance chased and believe I am in a good position to not deal with it when the economic tsunami hits again.  My cards aren't maxed out and I don't carry balances.  Fingers crossed it stays this way with what is coming.

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Back in 2008 I was balanced chase. Shouldn't experience that again. I rebuilt back in 2015/2016. PIF the whole time since. I've got decent high credit lines on most cards. If things get real bad and my creditors decided to slash my available credit in half just for the sake of doing it, because they can, I'll still be okay.

 

I'd rather have a $25k line cut in half, than a $5k line, or a $1k line.

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4 hours ago, centex said:

Given that we KNOW the APR will go up in the US as the Fed increases rates (about damned time BTW), I would ALSO not be surprised to see an increase across many lenders to a minimum of 2% of the balance plus accrued interest...the minimums are too low as things stand.  Sadly, even going to 2% will see increased defaults, which the systems will weed out organically without impacting responsible users of credit...

 

The existing standard min pymt of 1% + accrued interest already adjusts appropriately as interest rates climb.  I'm not sure why you think lenders would be motivated to accelerate principal repayment.

 

Now, I'm not arguing that, irrespective of interest rate, increasing the percentage of required principal repayment each month wouldn't be a good thing (and 2% + int seems a much more reasonable pace).  

 

However, since the min pymt formula ensures that accrued interest is paid each month, overall repayment isn't extended as a consequence of a rate hike.  So, if anything, I would expect lenders would be very hesitant to boost the principal portion of the monthly payment at the same time as the interest portion is increasing as well.

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1 hour ago, hdporter said:

 

The existing standard min pymt of 1% + accrued interest already adjusts appropriately as interest rates climb.  I'm not sure why you think lenders would be motivated to accelerate principal repayment.

 

Now, I'm not arguing that, irrespective of interest rate, increasing the percentage of required principal repayment each month wouldn't be a good thing (and 2% + int seems a much more reasonable pace).  

 

However, since the min pymt formula ensures that accrued interest is paid each month, overall repayment isn't extended as a consequence of a rate hike.  So, if anything, I would expect lenders would be very hesitant to boost the principal portion of the monthly payment at the same time as the interest portion is increasing as well.

The issue isn't that the interest payment portion would slide upwards as the Fed takes action...the issue is that banks won't have an incentive to let debt linger since, inevitably, the higher interest by itself will likely push some to the brink.  Raising the minimum percentage outside of the interest separates the wheat from the chaff and is actually a productive move to determine who will remain a good customer.  In the interim, the poor risks can be weeded out and sold off. 

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1 hour ago, centex said:

The issue isn't that the interest payment portion would slide upwards as the Fed takes action...the issue is that banks won't have an incentive to let debt linger since, inevitably, the higher interest by itself will likely push some to the brink.  Raising the minimum percentage outside of the interest separates the wheat from the chaff and is actually a productive move to determine who will remain a good customer.  In the interim, the poor risks can be weeded out and sold off. 

 

While I don't agree, I respect your take.  I suppose one way to thin the herd is to push the weak over a cliff ...  ;)

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On 6/14/2022 at 9:57 AM, CreditSucksNot said:

 

I have seen a few threads recently that were from posters (on several sites) that were being balance chased.  Most were maxed out and were experiencing balance chasing for the first time and unfamiliar with it.

 

While I am dismayed to hear this (heaven knows folk have been through quite enough already these past two years), I cannot say I am surprised.

 

At the risk of mixing metaphors, the general impression I am under is that the wheels on the apple cart are beginning to loosen and we are on the cusp of a widespread tightening of the credit reins (though perhaps noose may be a better word).  In essence, the West has been issuing credit like mad for some time, the giant hand is now on the handle of the credit spigot, and the fingers appear to be slowly rotating it towards the "trickle" position.

 

With any luck, I am misreading things badly; this is the merely the feeling I get walking around, exchanging the odd word, and sniffing the air a bit.  For all I know, the numbers may give a completely different picture and I am in the wrong, which would be an enormous relief.

 

I know more than a few people who, by all appearances, are maxed out right now, even if they are too proud to say so.

 

On 6/14/2022 at 9:57 AM, CreditSucksNot said:

 

I have never been balance chased and believe I am in a good position to not deal with it when the economic tsunami hits again. 

 

It is interesting you should choose the word "tsunami," as it coincides neatly with some wave-based imagery I am currently entertaining re the current highly interesting economic situation that appears to be developing slowly (but with gathering speed) as we speak.

 

Picture...an immaculate beach with a lone, smiling figure (representing the economy) who has just turned to gaze seaward.  We will ignore the zinc oxide on his nose and the large, not altogether flattering pair of shorts he is wearing because, at present, the sea is indeed worth a look. 

 

(I say this because a large and ominous wave is just starting to break onshore.)

 

As luck would have it, the figure is pivoting to take a look at the water just as wave is collapsing and the crest of the wave is reaching his nose.  And while the water may not imperil the zinc oxide the lone figure has carefully applied, it certainly threatens the lone figure itself.  Alas, the lone figure is looking at the water straight on (rather than edgeways, as we are), and has no idea what is about to hit it.

 

The particularly poignant thing is that in the brief glimpse we catch of it before it is engulfed in water, the face of the figure is wearing an expression that says, "Ah!  Water!  How cool and refreshing!"

 

And while that may be true on a momentary basis, the size of the wave makes it likely that the "cool and refreshing" aspect of it will not last for long.

 

 

 

Any road, that's just a mental image I have.  It is, I suppose, the result of wandering about on beaches every chance I get.

 

(Sans the stupid-looking shorts, of course.)

 

 

 

 

 

 

 

 

 

 

 

 

 

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5 hours ago, Flashman said:

 

At the risk of mixing metaphors, the general impression I am under is that the wheels on the apple cart are beginning to loosen and we are on the cusp of a widespread tightening of the credit reins (though perhaps noose may be a better word).  In essence, the West has been issuing credit like mad for some time, the giant hand is now on the handle of the credit spigot, and the fingers appear to be slowly rotating it towards the "trickle" position.

This is not a unique situation.  We see it every 15-20 years and those of us dealing with credit since back when the calendar began with a "19" at the front of the year have seen it following dot-bomb and again with the housing crash.  There have been some other tightenings, which is why most of us around here for 20'ish years always recommend getting credit when you don't need it. 

 

There has long been too much easy credit, and unfortunately, 2008 taught the banks that they can actually be rewarded for their poor decisions.  So they kept making those poor decisions, resulting in far too many having credit that their income does not support.

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45 minutes ago, centex said:

There has long been too much easy credit, and unfortunately, 2008 taught the banks that they can actually be rewarded for their poor decisions.  So they kept making those poor decisions, resulting in far too many having credit that their income does not support.

 

Speaking as someone who was extended a credit card by Providian when my credit started going south in the '90's, I'm bristle to any assertion that there's too much "easy credit".  Is a grantor issuing excessive credit if a subset of their customers have a 20% likelihood of default?  Or is it an appropriate extension of credit on behalf of the 80% who don't default (and who otherwise wouldn't have credit access), with the understanding that such credit is priced to absorb the price of defaults?

 

In an economic downturn, there are going to be defaults (simple fact).  If a bank's lending practices lead them to experience higher default rates than other lenders, that doesn't necessarily reflect a poor strategy, provided they managed their assets in a manner that reflected the higher portfolio risk.

 

Just saying that generalizations about credit policy make me uncomfortable.  Anyone who has suffered credit problems in the past should favor accommodating lender policies that don't unduly restrict those with the means to pay for credit.  (Please admit that determining the income necessary to support a given amount of credit issuance is an uncertain proposition.  I imagine that there are excesses, but excessively restrictive credit policies hurt many more than they "help rein in".)

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4 hours ago, hdporter said:

 

Speaking as someone who was extended a credit card by Providian when my credit started going south in the '90's, I'm bristle to any assertion that there's too much "easy credit".  Is a grantor issuing excessive credit if a subset of their customers have a 20% likelihood of default?  Or is it an appropriate extension of credit on behalf of the 80% who don't default (and who otherwise wouldn't have credit access), with the understanding that such credit is priced to absorb the price of defaults?

 

In an economic downturn, there are going to be defaults (simple fact).  If a bank's lending practices lead them to experience higher default rates than other lenders, that doesn't necessarily reflect a poor strategy, provided they managed their assets in a manner that reflected the higher portfolio risk.

 

Just saying that generalizations about credit policy make me uncomfortable.  Anyone who has suffered credit problems in the past should favor accommodating lender policies that don't unduly restrict those with the means to pay for credit.  (Please admit that determining the income necessary to support a given amount of credit issuance is an uncertain proposition.  I imagine that there are excesses, but excessively restrictive credit policies hurt many more than they "help rein in".)

Bristle all you want, but the reality is that there should be more emphasis on confirmation of actual capacity AND a concomitant ability to price the risk accordingly.  Sadly, banks are precluded from properly pricing the risks that are taken on even with more stringent underwriting. 

 

All one need do is look back at the incessant whining that gave us the Schumer box because people couldn't be bothered to actually READ the terms to which they were agreeing, and the whining that came when banks implemented a requirement to cover one percent of the balance plus accumulated interest.  That banks are extending credit to people who can barely cover that nut says there is still too much easy credit that has been allowed to exist.  Those who took advantage of the 'payment holidays' in 2020 should have seen their cards shut off to new purchases.  After all, if your income has dropped to where you cannot pay your bill even with helicoptered funds that were coming in for so many, then you have no right of access to MORE free money. 

 

Banks SHOULD be allowed to assign an APR north of 30% and then to step it down if the customer has shown a pattern of prudent fiscal management of the card.  After all, if the consumer is taking care of their business, then 30% APR means nothing to them since, after all, they aren't paying interest.  Banks SHOULD be permitted to price their risk in a manner that adequately covers them during periods of downturn. 

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