More consumers are opening both store- and bank-issued credit cards, according to the latest Equifax National Consumer Credit Trends Report. The number of open retail-issued cards exceeded 183 million in October, the most since September 2009. Bank-issued cards also hit a high: 312 million, the most since December 2009.
In the first eight months of the year, retailers issued 24.6 million new cards, an 8.8% increase from that time last year, and lending to subprime borrowers increased 15.8%. A news release on the report described subprime borrowers as those with Equifax Risk scores lower than 660.
While delinquencies on store cards have declined, the rate is nearly double that of bank-issued cards. In October, store cards 60 days past due made up 3.48% of accounts, down from 3.52% in October 2012.
At the same time, the 60-day delinquency rate among bank-issued credit cards declined from 2.18% to 1.88%.
Store cards are a big part of retailers’ holiday business, and consumers’ tendency to overspend during these months may contribute to the higher delinquency rate among store cardholders. In the news release, Equifax Chief Economist Amy Crews Cutts touched on the importance of balancing the rewards offered by store cards and the ability to pay the bills.
“Retailers can leverage these cards to drive traffic to their stores through special offers to cardholders and can encourage larger purchases by offering favorable interest-rate promotions for big-ticket items,” Cutts said. “As long as consumers resist the urge to overspend, these cards can be a great way to save money when holiday shopping.”
What It Means for You
For people heading out to malls to start gift shopping, it’s likely a cashier or two will bring up a store card and the discounts it may offer. For this reason, it’s important for consumers to know ahead of time whether they want to open such accounts.
One of the easiest ways to make this decision is to look at your existing credit profile and anticipate how an inquiry and extra credit card would affect it. The free Credit Report Card offers some help here: Consumers can see their credit scores and letter grades for their payment history, debt usage, credit age, account mix and inquiries.
Not only does this give insight into what creditors will consider when deciding to approve or deny a credit card application, it gives users an idea of how a new credit card will fit in. For instance, if a consumer sees she has a lot of inquiries, adding another may not be a good idea. If your credit utilization rate (how much of your available credit is being used) is high, adding a new card could help lower that ratio, but it’s important to distinguish between adding credit to help your profile and adding credit as an excuse to overspend.