UPDATE: Grading Our Predictions for 2012
At Card Hub, we believe that it is very important to hold financial professionals, institutions, and regulators accountable for their actions and to safeguard the interests of consumers. As such, it only makes sense that we hold ourselves accountable as well. So, you might be wondering how we did with the predictions for 2012 that we made in December 2011. Let’s take a look:
The European debt crisis will not further impact credit availability for U.S. consumers
- Grade: A
- Rationale: U.S. consumers incurred nearly $18 billion in credit card debt during the second quarter of 2012, and we are expected to end the year $43.5 billion more in the hole than we started. That simply wouldn’t be possible if debt issues on the other side of the pond had affected credit availability domestically.
Overall credit availability will increase
- Grade: A
- Rationale: The aforementioned credit card debt statistics clearly show that credit was far easier to come by in 2012 than in 2011. That’s a natural result of an economic recovery, after all, and even if you believe the economy should be bouncing back faster, there’s no arguing that we’re doing better now than before.
- Consumer credit scores will rise
- Grade: A
- Rationale: According to the Fair Isaac Corporation, the average FICO Score was 688 in April 2011 and 690 in April 2012. 53.2% of consumers had FICO scores of 700 or above in April 2011, as compared to 53.5% in April 2012. 24.9% of people had scores below 600 in April 2011 and 24.2% were in that range in April 2012.
- No new personal finance reform legislation will be passed
- Grade: A
- Rationale: Check for yourself, this simply has not happened. We didn’t really have much reason to pass new personal finance legislation anyway, considering how effective the CARD Act has been and the CFPB’s ability to proactively address issues and make new rules.
Credit card and prepaid card use will trend upward, while debit card use will fall
- Grade: B
- Rationale: 2012 was a huge year for prepaid cards, with a number of big companies rolling out their first offerings and A-list celebrities signing on as endorsers. Prepaid card circulation and load statistics also illustrate a rapidly expanding market. The same is true of credit cards, the health of which is illustrated by higher usage. However, debit card use also increased during 2012, albeit only slightly. U.S. consumers made 5.4% more transactions on VISA and MasterCard debit cards during the first three quarters of 2012 (data for the fourth quarter is not yet available) than during the same period in 2011. They also spent 4.1% more in doing so. Therefore, with all things considered, we’ll give a “B” to our prediction that prepaid card and credit card use would rise in 2012 while debit card use would fall.
Credit card companies will continue offering lucrative sign-up offers
- Grade: A
- Rationale: There are a plethora of credit cards currently offering sign-up deals. The average initial bonus is roughly $60 cash back or 9,500 points/miles, and the average 0% introductory term lasts 10 months. What’s more, you can get an initial bonus worth as much as $400, 0% terms as long as 18 months are available, and we’ve even see free balance transfer credit cards make a comeback.
Whoa, nearly straight A’s! What do you think – are these high marks deserved or do you think we were as lenient as that college professor whose elective everyone wanted to take? Let us know in the comments below. In addition, feel free to share your thoughts on our predictions for 2013 and/or tell us what you see in your financial crystal ball!
Card Hub’s 6 Credit Predictions for 2012
The holiday season tends to be a time for nostalgia and reflection, but as the calendar turns from 2011 to 2012, we will undoubtedly begin looking to the future, making resolutions, basking in the potential that comes with new beginnings, and wondering what the new year has in store. But why wait? Foresight is key in finance, so let’s make some predictions for things that will affect your wallet in 2012.
Armed with an ability to see into the future, most consumers, analysts and even politicians would all be interested in the same thing: the fate of our European brethren. The European debt crisis is not only a hot-button topic, but also what our personal finances largely hinge upon in 2012. Though countless variables therefore remain undefined, we can nevertheless make the following educated guesses for the state of credit:
- The European debt crisis will not further impact credit availability for U.S. consumers: There are three general scenarios for how the European debt crisis will play out: 1) radical changes will be made in order to provide for long-term financial prosperity on the continent; 2) Problem nations will default, turning the Great Recession into Act 1 of a double-dip recession; 3) The European Central Bank, together with European governments, will implement stop-gap measures, ensuring neither a permanent solution nor short-term fiscal calamity. If the last few years are any indication, we can expect Scenario 3 to come to fruition in 2012, which means no surprises moving forward.
- Overall credit availability will increase: As we all know, available credit withered during the Great Recession but has since bounced back. Expect this trend to (slowly, but steadily) continue in 2012, as the increasingly healthy portfolios of credit card companies, mortgage brokers and other lenders will translate into more relaxed underwriting standards and more lines of credit being extended to more consumers.
- Consumer credit scores will rise: With the unemployment rate falling from an average of 9.6% for 2010 to 9.03% though October 2011, more credit available, and an upwardly trending economy, it’s inevitable that credit scores will rise. In other words, decreasing unemployment means more people have been able to pay their monthly bills over the past year, and since credit improvement is a gradual process, we can expect to see tangible credit score benefits in 2012.
- No new personal finance reform legislation will be passed: Washington’s attention will be on broader economic issues as well as the upcoming election, so don’t expect additional legislation to follow in the path of the CARD Act of 2009 or the Wall Street Reform and Consumer Protection Act, which, of course, contained the Durbin Amendment.
- Credit card and prepaid card use will trend upward, while debit card use will fall: The writing was on the wall for debit cards as soon as the Federal Reserve, in accordance with the Durbin Amendment, capped debit card interchange fees at 24 cents per transaction on October 1 and wiped out $9.4 billion in annual revenue for major banks. Banks have since made use of debit cards far less appealing, while also improving rewards for credit card users. Expect more major banks to offer prepaid cards in 2012 and to position them as alternatives to debit cards and checking accounts.
- Credit card companies will continue offering lucrative sign-up offers: In 2011, we saw initial rewards bonuses skyrocket into the hundreds up dollars and 0% introductory rates last as long as 24 months. If you didn’t take advantage of this, you needn’t worry because the trend will continue in 2012. The reason: Even though credit availability will increase, the Great Recession taught banks how important it is to have a low-risk customer base, and extra points, miles or cash back as well as 0% intro rates are a useful tool for garnering the business of consumers with the highest credit scores.
Ultimately, 2011 will closely resemble 2012, at least from a personal finance standpoint, but that’s not necessarily a bad thing.
“2011 was a great year for credit card users as it was the first full year they enjoyed increased transparency and protections brought about by the CARD Act.” says Card Hub CEO Odysseas Papadimitriou. “A more consumer-friendly credit card environment, together with my expectation that the European debt crisis will be contained and the U.S. economy will continue to recover, makes me believe that 2012 will be better than 2011.”
With that being said, happy new year in advance, and may 2012 be prosperous for all!