As credit cards defaults and delinquencies continue to wane, banks and retailers are growing increasingly more confident in extending credit to consumers.
According to the Equifax National Consumer Credit Trends Report released Monday, banks made 27.6 million new credit-card loans between January and August 2013. That's a 7.3% increase from the same eight-month period a year ago and the most new loans issued during that time frame since 2008.
The total amount of new bank-issued credit also hit a five-year high between January and August, rising to $128.7 billion.
The number of cards issued by retailers also hit a five-year high for the January to August period as consumers opened 24.6 million retail card accounts, according to Equifax. The total amount of new credit issued year-to-date climbed to $46.6 billion, an 11.6% increase from the same period last year.
A big reason for the surge in card borrowing is that more and more borrowers are paying their bills on time. Sixty-day delinquency rates dipped to 1.88% in October, down from 2.18% during the same month in 2012. Write-offs also fell during that period, dropping to 3.92%, compared to 4.81%.
The report suggests that credit card companies are loosening lending standards. The number of loans issued to subprime borrowers — people with Equifax credit scores below 660 — hit a six-year high, rising to 8.2 million year-to-date. That's a 15.8% increase from the same period in 2012.
Moody Investor Service published a report in October highlighting the weakening underwriting standards for new credit card accounts. The rating agency said that the trend of lending to borrowers with riskier credit profiles may lay the groundwork for a deterioration of performance in credit card securitizations if the U.S. economy falls into a recession again.
Eventually, as the economy improves, the logic is that these weaker credit quality consumers could leverage up and eventually the accounts would make their way into the credit card securitization trusts.
Demand for automobile loans is also surging. Lenders originated $327.3 billion of auto loans in the first eight months of 2013, up 15.6% from the same time a year ago and most for that time frame in eight years, according to the report.