The recent downturn is over and the economy has been improving for more than a year. However, while consumers are generally borrowing more, they’re being more cautious in how they deal with credit, and banks remain hesitant to begin issuing some types of credit again.
Slowly but surely, consumers have been returning to borrowing from lenders again in the wake of the recent recession, but have done so cautiously, according to a report from the PBS NewsHour. That is, while lending has generally increased in the last several months, the vast majority of borrowing has come in the form of car loans and student loans, while credit card debt has largely continued to fall. This may indicate that consumers are seeking lines of credit for what they feel is necessary—transportation and education—but eschewing the use of credit for day-to-day financing.
These changing borrowing habits come at the same time as lenders are looking for new avenues to begin extending credit to more consumers, but only for some accounts, the report said. For instance, many are now opening credit card offers to subprime consumers who would have been denied any credit at this time last year, while still keeping extremely tight restrictions on mortgage lending. In fact, recent studies have found that borrowing standards forare so restrictive that even consumers with what would normally be considered top-notch credit ratings are being turned down for various reasons.
“[Lenders] want to look at those consumers that really have the ability to repay that debt,” James Chessen of the American Bankers Association told the news program. “It doesn’t do banks or customers any good to … put credit in their hands if they can’t repay it. We don’t want to repeat the lessons that we have had before. So both banks and consumers, I think, are being much more prudent, much more cautious. And I think that’s appropriate.”
Experts note, though, that consumer credit card use is still largely taking place even as debts on these accounts tumble. The reason for this is that many are using their cards to make everyday purchases but doing so only in amounts that they could afford to pay off at the end of every month, so that they don’t carry a balance over and end up paying interest on it.