FICO Study: Another Nail in Credit’s Coffin?

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Credit card use is on the decline, according to a new report released by FICO on Tuesday.

Research conducted by FICO labs shows that the number of new credit card accounts dropped 17.7% during the 12 months ending in April 2010 from the previous year. Additionally, the total amount of credit available on all U.S. consumer credit cards fell 12.2% during the same 12-month period.

FICO attributed the decline to a decrease in credit availability as banks continue to enforce stricter lending criteria when screening applicants.

“Banks remain concerned about loss prevention,” Andrew Jennings, chief research officer at FICO, said in a press release.”Government data released in August indicates personal bankruptcies are at their highest levels in five years, and other recent data confirms the ongoing challenges in the employment and housing sectors.”

These findings are similar to data released by Javelin Strategy & Research, which says that Americans are favoring debit over credit as a form of payment. Javelin credited the switch to not only an increased difficulty in obtaining credit, but also a marked change in consumer habits fostered by the recession.

FICO, on the other hand, believes that consumer demand for credit is still strong. The study found that the number of inquiries for new credit fell by only 3% during the 12-month period, indicating that consumers were unable to access the credit they were still seeking.

While the reasons behind the consumer credit gap may be debated, FICO agreed that the credit industry is not likely to improve soon. In addition to its research, results from FICO’s latest quarterly survey of consumer credit trends also shows that bankers continue to feel pessimistic about the credit market. The survey was conducted for FICO by the Professional Risk Managers’ International Association, which interviewed 235 U.S. risk professionals in July to gauge their outlook on consumer lending for the next six months.

“With banks still seeing a rather negative outlook, we expect a lot of unmet demand in consumer credit for quite some time,” Russell Walker, a spokesperson for PRMIA, said.

Nearly half of the respondents, or 46%, said they expect approval criteria for credit to become more strict in the near future. Furthermore, 38% of survey participants said they expect the approval rate for credit applications to decline. Those expecting the amount of new credit extended to consumers to either hold steady or decrease hit 65%.

Their faith in consumers isn’t increasing, either. Nearly 85% of bankers who manage credit cards explicitly said they expect delinquencies on credit cards to increase or remain the same.

Looking to join the credit card ranks? Check out this MainStreet article that lists the best credit cards for first-timers.

—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.

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