Fed Says Credit Cards Easier to Get, but Does Anyone Want One?

Banks were more willing to approve credit card applications in the first three months of 2011, according to a new survey from the Federal Reserve, but it was less than clear whether consumers really want them.

According to the Federal Reserve's latest survey of senior loan officers -- a quarterly poll of U.S. banks regarding their lending practices -- credit card issuers were much more likely to approve applicants in the first quarter of this year, as banks continue to ramp up the flow of credit after slowing it to a trickle during the economic recession. "We're definitely seeing more and more offers going to households," says Andrew Davidson, senior vice president at Mintel Comperemedia, which tracks credit card mailings.

There were mixed signals when it came to demand, however. The Fed noted that "demand was little changed for credit card loans" in the early months of 2011, ultimately showing a net decrease of about 3%. However, when the survey asked about both new credit card accounts and increases in existing credit lines, respondents said demand had gone up substantially (a net 16%.) Those two results would seem to indicate that while people aren't really looking for new credit cards, they want access to more credit on the plastic they already carry.

To create its quarterly survey, every three months the Fed requests feedback from banking executives about changes in the supply and demand for loans to businesses and households over the previous quarter. The latest survey included responses from 55 domestic banks and 22 U.S. branches and agencies of foreign banks. This survey marks the first time the Fed has divided its questions among credit card, auto and other consumer loans.

Lending Standards Keep Easing

The Fed's latest data showed that 20.5% of banks reported easing their standards for approving credit card applications. That's more than double the percentage that relaxed standards in the fourth quarter of 2010. It's also the most significant easing since the Fed began separating out credit cards from other loan types back in 1996.

In response to other questions about changes to terms and conditions for new or existing cardholders over the past three months:

*About 6% of banks increased credit card limits for new or existing cardholders, while about half that number (2.9%) lowered them.

*About 9% of banks increased interest rates on new or existing cardholders; an equal number of banks decreased them.

*About 6% of banks lowered the minimum credit score required to get a card, while no bank increased the required score.

In addition, more than 10% of banks said that the overall credit quality of applicants for new cards or extended credit lines is improving. That means that banks are seeing more customers with higher credit scores, stronger household incomes and other such indications that they would be a low-risk borrower.

They also seem to be targeting a higher quality of borrower, too, Davidson says. "Most of these offers are still targeting the most creditworthy consumers who have multiple cards and are getting the most offers," he added.

Demand Still Question

Still, how receptive consumers are to these new offers remains a question. About 11% of respondents said that demand for credit card loans fell in the first quarter of 2010, while 8% said it increased.

When asked about the combined demand for increased credit lines and new card loans, the responses changed. In that case, nearly 1 in 4 banks (24.3%) surveyed says that demand has grown. Fewer than 1 in 10 (8%) said it decreased.

Good News for Borrowers

Overall, much of the change in the last quarter came from larger banks, the survey showed. For example, none of the small banks surveyed indicated that they had significantly changed their lending standards in the last quarter. Meanwhile, more than 1 in 3 large banks said that their standards had eased.

As a whole, the survey seems to bring good news for consumers seeking credit. Amid an ongoing economy recovery, it appears they are more likely to get approved for new plastic.

"I do have a general feeling that credit cards and store cards are easier for my clients to obtain now," says Natalie Pankow, a credit adviser with the Jewish Vocational Service in Chicago. "I am hearing more success stories with clients applying for these cards and getting approved."

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