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Need a credit card? Now might be a good time to apply

May 11, 2011

| Money Rates Columnist

One in five banks loosened their overall standards for new credit card applications in the first quarter of 2011, according to a new survey from the Federal Reserve Board.

But customers seemed somewhat indifferent to the opportunity to apply for credit. The Fed survey--a quarterly poll of U.S. banks about their lending activities--showed a 3 percent decrease in the demand for even the best credit cards.

The survey results were a far cry from the same period in 2008, when more than half of the banks were raising credit score requirements and refusing to lend to anyone who didn't meet all the lending requirements on their credit card application.

Although cardholders weren't lining up apply for credit cards, bank loan officers told the Fed that there was a 16 percent increase in the number of people seeking higher lines of credit.

Other findings from the survey

The 20.5 percent of banks who said they had eased their standards for approving credit card applications was twice the rate from the last three months of 2010, and signaled the most significant lessening since 1996. Some other findings included:

  • The percentage banks that raised interest rates on new or existing cardholders equaled the percentage that lowered interest rates.
  • Of the 55 domestic banks and 22 foreign banks with U.S. branches included in the survey, about 6 percent lowered their required credit score, and none of the banks raised the required credit score.
  • About 10 percent of the banks said the overall credit quality of the credit card applicants they reviewed were improving.
  • Despite the overall 3 percent decline in demand, surveyed banks were not in complete agreement on how eager people are to increase their credit limit or get new credit cards. Nearly 25 percent of the banks said demand had grown, but 8 percent said demand had decreased.

It wasn't all credit cards

The survey also queried banks about other types of loans and found that demand for residential mortgages continued to decrease, although interest in industrial loans and commercial mortgages increased.

Banks are also easing their requirements for auto loans, and the percentage of banks that said they were willing to make more consumer installment loans for such things as vehicles rose to its highest level since 1994.

The banks that said they were easing their requirements for credit card application approvals were limited to large banks, the Fed said.

When it came to mortgages, banks continued to tighten their standards on nontraditional mortgages, primarily at smaller banks. The demand for both mortgages and home equity lines of credit continued to decrease.

While banks continue to report solid profits, the Wall Street Journal said the tepid demand for credit cards is limiting banks' revenue increases. As a result, bank stocks have not been doing well in the past year, with one index showing bank stocks falling nearly 8 percent while the overall stock market has surged more than 16 percent.

Although banks are paying rock-bottom interest rates for savings deposits, that doesn't do the banks much good if they aren't able to loan out the money and increase revenue through interest rates, penalties on late payments and annual fees.

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