Is credit card availability falling?

In the US it appears that this may be the case.  American express is offering some clients a $300 gift card to close their accounts and pay off credit card debt in the next few months (ht Marginal Revolution).  This is interesting, given that a few months ago (in the middle of the explosion of the credit crisis) there still appeared to be plenty of available credit for consumers.

Will we see the same sort of deals in New Zealand?  According to RBNZ figures (here) credit card limits are still growing at a reasonable clip (4.3%pa).  Furthermore, we know that credit card rates have fallen – implying to me that banks/credit card companies are still willing to provide credit to consumers.

However, interest bearing debt has also risen quite sharply – as “interest bearing debt” is generally debt that is in some way overdue this way be a concern.  In the US it was concern about overdue payments that has lead to a pull back in credit card availability – implying that there is scope for it to happen here.

Personally, I think a sharp decline in peoples willingness to use credit cards will be the primary factor behind growth in credit debt going forward – as a result, I would expect the interest rate on credit cards to fall further as well.  I don’t think we will have to worry about credit card companies trying to restrict lending amounts …

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  • Having seen the crash approaching for several years out, I paid off my credit cards, sold the house and put the money in a safe place 4 months before the big thump. The signs have been there for years and trajectory of the debt-valanche was broadly discernable. The banks really SHOULD have the problem of no one wanting credit.

  • Hi Truth,

    I’m not quite sure why a credit crunch means that you should try to pay back debt sooner. Surely, the value of the liquid funds would be higher during such a crunch then they would be otherwise?

    In the NZ case I’m pretty sure that the banks are facing a short-fall in demand for borrowing – at least compared to what they have faced. There isn’t really anything wrong with this – but if it is going to be sustained the banking sector needs to be smaller.

  • From all I have seen the biggest problem has been too much credit availability. Restricting the amount of credit would be a good thing. Now at a point that restriction could be too much (like the whole larger credit crisis), but for credit cards I think we would be better off if the amount of credit used declined. It would be nice if that was from people being smart enough to stop talking out so much debt but if it is from banks not offering so much that will be good too.

  • Hi John,

    I never like binding constraints – fundamentally I would prefer it if falling debt is the result of peoples choices than being the result of circumstances thrust upon them.

  • Either you have a big adjustment like a 20 percent or 30 percent decline, or you have a big recession or you have a slow decline in property prices or several years of no growth.\par