Credit Card Lending Needs a Slowdown; Work with Cardholders to Shield Upcoming Risk

Credit card issuers are beginning to temper lending as credit portfolios deteriorate. Indications are that credit card loan applications have steadily increased since the onset of COVID-19, but the credit card loan approval rate has dropped. In a similar trend, requests for credit card line increases more than doubled, but the approval rate for line increases followed a downward trend. This Javelin Strategy & Research impact note reviews the current climate and explains why top issuers are beginning to tighten lending strategies. 

The strategy to tighten lending is appropriate for credit card lenders of all sizes. According to 2023 Dodd-Frank stress tests—a regulatory requirement of certain banks—top issuer loan loss reserves are ready to weather a brewing credit storm. Issues exist at small and middle-market credit card issuers, which should follow suit and tighten their operational lending strategies. (For more information on the soundness of the U.S. payments industry, see The State of the U.S. Credit Card Industry.) That credit card issuers are not slowing their lending is appropriate and should set the stage for lenders managing credit risk and underwriting.