Five out of six major credit card providers in the US have reported further reductions in credit card debt. Overall credit card debt stood at $785 billion at the end of March, according to the Federal Reserve.
Figures for April show only Bank of America with increasing debt balances with approximately 1 in 12 in arrears. The best performing institution was Capital One with a default rate of 3.5%.
This hardly reflects a strengthening of the consumer base since the financial meltdown of 2007/8. The explanation given by most analysts is that the reduction is due to the inability of customers with any payment problems in the past to get new cards.
Nevertheless, there are ways that consumers can widen their choice of card, so click here to browse those on offer.
Banks and other financial institutions have written off billions of dollars over the past few years and have changed their selection criteria for new customers to improve the quality of their portfolio. Good news for them and their shareholders, but not for consumers looking for access to credit.
Most financial institutions use credit scoring as the basis for determining whether to accept a new application. Although the actual scoring algorithms may differ, the base data used in calculating the final score comes from common sources.
Everyone has a credit history. This history contains details of all financial transactions in the past plus other data on what type of credit has been used whether it is a card, mortgage, or loan. Every payment record is kept giving a profile of how a customer has performed on each financial product.
FICO scores are calculated on a combination of the information held in the credit history. Around 35% of the score is based on the payment history, which shows how well financial commitments have been met in the past.
30% of the FICO score is based on the amount owed. That is if a consumer has a high amount of borrowing versus their income the score will be lower than someone who has a low borrowing relative to income.
So two-thirds of the score is based solely on what is owed and payment performance on those obligations. Therefore, keeping up payments and not incurring an overdue or late payment charge can make a huge difference to the FICO score.
Missed payments age so the longer ago they occurred the less important they become. Recent defaults score much more highly.
The remaining 35% of the FICO score is determined by the length of the credit history, types of credit used and any new or recent credit applied for. Therefore, someone with a long satisfactory record of managing payments will score better than someone with a relatively short credit history.
Fortunately, competition for new customers is still strong – especially for those with good FICO scores.
Different companies have different acceptance rates so it is important to check all available offers to see which best suits an individual’s needs.
Comparison websites are a great way to both save time and get a summary of the best offers available.
Remember that lenders are selective so making sure that the credit history is in the best possible shape before applying should open doors to the best offers.