Rising lending is another sign the economy is rebounding


By Sally Français | Nerdwallet

Another clear sign that the country’s economy is returning to pre-Covid activity levels, the number of new credit accounts opened is comparable to what it was before the start of the pandemic.

U.S. consumers were approved for 217 million new credit accounts in the third quarter of 2021, according to data released this week by the Federal Reserve Bank of New York. That roughly matches the number of approvals in the first quarter of 2020, and that’s a good sign for consumers looking to borrow.

Consumer credit approvals declined sharply after the start of the pandemic, especially for borrowers with less than good credit. This has left many people with little or no access to credit just when they need it most – as employers have laid off workers amid pandemic shutdowns. In general, banks are less likely to lend in all categories of consumer loans during an economic downturn, but are more likely to lend when the economy is doing well.

“As we hit the middle of 2021, we have seen a resurgence across industries, with autos, credit cards, personal loans and mortgages showing signs of life,” according to a statement from TransUnion, one of the three major credit bureaus, as part of its 2021 quarterly report on the outlook for the credit industry, released in September 2021. “Financial institutions are starting to lend and grant credit again, and the rigs have increased in both mortgages and automobiles, with personal and credit cards closing the gap.

Strict lending standards relax

In March 2020, the unemployment rate was 4.4%, according to the Bureau of Labor Statistics. A month later, it had climbed to 14.8%, the highest rate since the government began officially tracking unemployment in 1948.

“A consequence of this dramatic increase has been an equally huge slowdown in loan origination,” noted TransUnion in its 2021 quarterly credit industry report released in May 2021. “Some lenders have tightened their standards and consumers have withheld the opening of loans during the first months of the pandemic. “

The Federal Reserve’s surveys of bank loan officers in April and July 2020 found that credit standards tightened almost immediately. Limits on credit cards have been reduced while approval requirements have become stricter. With auto loans, the maximum loan term or the minimum credit score required to get a loan has also been tightened.

New data from the Fed shows how much has calmed down since then. A look at the offers available in the credit market shows something similar. Take credit cards with balance transfer, which have returned to the market in effect in recent months. These credit cards allow consumers to transfer their high interest debt to a card with a 0% APR introductory period, which can save them hundreds of dollars in interest and pay off their debt faster. Balance transfer offers became very hard to find in the summer of 2020. Nowadays, most of the big banks are again offering cards with 0% APR offers on balance transfers for six to 18 months.

Also noteworthy is how quickly the pace of credit approvals has rebounded. After the 2007-08 financial crisis, commercial banks experienced negative loan growth for nearly four years, according to the Federal Reserve Bank of St. Louis. Compare that with the roughly year and a half it took for loans to return to more normal levels after the start of the pandemic.

Then again, the 2020 recession lasted two months, according to the National Bureau of Economic Research, making it the shortest U.S. recession on record.

What you need to know to open a new credit account

The new report is good news for people who need access to credit. But you may still want to temper your expectations. As the banks lend again, they remain cautious about how much and to whom they lend.

Expect a drop in lines of credit

“To meet consumer demand, supply from issuers has broadly returned to the market, with uncertainty being managed by weaker credit line allocations,” TransUnion said in a statement surrounding its quarterly report on the market. credit industry in the second quarter of 2021.

Higher lines of credit help you reduce your use of credit. A key factor in credit scores, usage measures how much money you owe against the total amount of credit you have. The lower your usage, the better. (Aim to keep your balance below 30% of your total available credit).

Banks still prefer low-risk clients

And taking care of your credit scores is also essential to accessing that newly available credit.

“Card issuers continue to be cautious with the mix of consumer risks and have shifted the growth of lines of credit towards lower risk consumers,” TransUnion said.

Lenders use credit scores to estimate the likelihood of you paying back the money you borrow. While each lender has their own unique ways of determining “good” or “bad” credit, ratings of 720 and above are generally considered excellent credit and the lowest risk.

Some of the ways to protect and improve your credit scores: Pay off debt and pay bills on time. If you’re having trouble establishing credit, a good place to start is to become an authorized user on a trusted friend or family member’s credit card, or apply for a secured credit card. which is less risky for the bank because your credit limit is backed by a down payment.

Just keep in mind that even a great credit score doesn’t guarantee that you’ll be approved for credit – or for as much credit as you want.

Sally French writes for NerdWallet. E-mail: sfrench@nerdwallet.com. Twitter: @SAFmedia.


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