Another sign of the economy is near pre-COVID levels

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    Another clear sign that the country’s economy is returning to pre-COVID activity levels is the number of newly opened credit accounts at pre-pandemic levels.

    According to data released this week by the Federal Reserve Bank of New York, US consumers were approved 217 million new credit accounts in the third quarter of 2021. That’s roughly the number of approvals in Q1 2020 and is a good sign for consumers looking to borrow.

    Consumer credit approvals fell sharply after the pandemic broke out, especially for borrowers with poor credit ratings. As a result, many people only had limited or no access to credit when they needed it most – as employers laid off workers during the pandemic shutdown. Typically, banks lend less to all categories of consumer credit during economic downturns, but more when the economy is doing well.

    “By the time we got to mid-2021, we saw an upswing in all sectors, with auto, credit card, personal loan and mortgage showing signs of life,” said a statement from TransUnion, one of the three major credit bureaus, as part of its quarterly credit released in September 2021 Industry Insights Report 2021.

    Strict lending standards are loosening

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

    “One consequence of this dramatic increase was an equally immense slowdown in lending,” noted TransUnion in its quarterly Credit Industry Insights Report 2021 published in May 2021. “Some lenders tightened their standards and consumers held out for the first few months of the pandemic.”

    Federal Reserve polls of bank loan officers in April and July 2020 found that credit standards had tightened almost immediately. Credit card limits have been reduced while approval requirements have tightened. In the case of car loans, the maximum credit period and the minimum creditworthiness required for borrowing have also been tightened.

    The new Fed data shows how much this has eased in the meantime. A look at the offers on the credit marketplace shows something similar. Take credit cards with prepaid transfer that is over returned to the market in force in the last few months. These credit cards allow consumers to transfer their high-interest debt to a card with a 0% APR introductory period, saving hundreds of dollars in interest and paying off their debts faster. Credit transfer offers became very difficult to find in the summer of 2020. Today, most major banks are again offering cards with 0% APR for credit transfers for six to 18 months.

    It is also noteworthy how quickly the pace of loan approvals has recovered. After the 2007-08 financial crisis, commercial banks saw negative credit growth for nearly four years, according to the Federal Reserve Bank of St. Louis. Compare that to the roughly year and a half it took for lending to return to more normal levels after the pandemic broke out.

    On the other hand, according to the National Bureau of Economic Research, the 2020 recession lasted two months, making it the shortest US recession on record.

    What you should know about getting a new credit account

    The new report is good news for people in need of access to credit. But you may still want to dampen your expectations. As banks lending again, they are still cautious about how much they lend and to whom.

    Expect lower lines of credit

    “To meet consumer demand, issuers’ supply has largely returned to the market, with uncertainty being addressed through lower credit line allocations,” TransUnion said in a statement on the Q2 2021 Quarterly Credit Industry Insights Report.

    Higher lines of credit will help you get your Credit utilization low. As a key factor in creditworthiness, usage measures how much money you owe in relation to the total amount of credit available to you. The lower your workload, the better. (Be sure to keep your balance below 30% of your total available balance).

    Banks still prefer lower-risk customers

    And maintaining your creditworthiness is also the key to accessing that newly available credit.

    “Card issuers continue to be cautious about consumer risk mixes and have shifted credit line growth to lower-risk consumers,” TransUnion said.

    Lenders use credit scores to estimate the likelihood of you paying back the money they borrow. While each lender has its own means of determining “good” or “bad” creditworthiness, scores of 720 and above are generally considered excellent creditworthiness and the least risk.

    Among the ways Protect and improve your credit score: Pay off debts and pay bills on time. If you are having trouble building funds, you can first become an authorized user on a trusted friend or family member’s credit card, or submit an application secured credit cardwhich is less risky for the bank because your line of credit is backed by a deposit.

    Just remember that even excellent credit is not a guarantee that you will be approved for borrowing – or as much credit as you want.

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