First three quarters of 2012 see consumers take on more credit

More consumers took on credit during the first nine months of the year, which could signal that these people have improved their credit scores. However, it may also put some consumers at risk of needing a credit fix later on, especially if they build up a significant amount of debt in the coming years.

From January to September, the level of credit originated by consumers rose to $675 billion, according to a report from Equifax. This was close to 30 percent higher than the figure in 2010, which was $523 billion. The total level of originations before the recession averaged approximately $1 trillion.

Consumer credit created in the past 24 months had a share of approximately one-third of all current, outstanding balances, the credit bureau's National Consumer Credit Trends Report explained. However, only 6 percent of all delinquent credit balances were from these originations. This may suggest that consumers who took on new credit in recent months were more responsible with it, overall.

Overall write-offs for consumer finance dropped to $70.9 billion during the first 11 months of this year, the report explained. This was far lower than the $151.8 billion recorded during the first 11 months in 2009. The latest figure was a decline of more than 50 percent from January.

"Consumer spending is being supported by gradually opening credit markets, with higher new limits on accounts, a gradual upward trend in non-mortgage consumer debt outstanding, and also consistently low utilization rates," said Amy Crews Cutts, chief economist for Equifax. "Meanwhile, consumer finance delinquency rates, not including home loans, have returned to pre-recession levels – all signs that the consumer-led recovery is gaining strength heading into 2013."

Various loan types experience higher origination levels
Credit card originations rose significantly during the first nine months of the year. The report explained that bank credit cards increased to $132.2 billion in September of this year, which was more than 40 percent higher than the $87.8 billion during the same period two years ago. New accounts for this type of card increased to 29 million, which was the highest level since 2008. Four years ago, the figure was 43.5 million.

Write-offs for November also dropped 20 percent from the same period in 2011, while utilization rates stabilized. That figure was approximately 22.5 percent this year, and bank card accounts remained at approximately 300 million for the past quarter.

Retail credit cards experienced increased use in the past several months as well. The limit level for this card type rose to $345 billion for the first 11 months of the year, the report noted. This was the most elevated level in more than two years. Originations for the first three quarters reached a total of $47.5 billion, which was approximately 17 percent higher than the 2010 figure, which was close to $40 billion.

Auto loans also remained popular this year, as more consumers took initiative and purchased a vehicle. Overall auto loans rose to 16.4 million during the first three quarters, which was more than 10 percent higher than the same period last year. This was also the highest origination level in the past five years.

Meanwhile, outstanding loans also increased this year, as the first 11 months experienced 58 million current loans. This was the highest figure in more than three years. There also was an increase in loan balances, which reached its highest point in 45 months, with a total balance of $775.7 billion. Additionally, There was approximately $318 billion originated during the first three quarters of this year, which was approximately one-third higher than the same nine months in 2009. That figure was close to $210 billion.

Economic growth picks up in Q3
Much of the increases in consumer credit originations may be due to the improving economy. According to the Department of Commerce, the level of economic growth rose to a rate of 3.1 percent during the third quarter. This figure was much improved from the previous quarter's level of 1.3 percent. The latest level was much improved from the previous estimate of 2.7 percent for the third quarter.

There was also multiple increases that were due to a heightened level of purchases, investment and government spending, the report explained. Additionally, there was improvements in residential investment from the previous quarter.

While more consumers may be taking out more significant amounts of credit, some may want to be careful. Not managing the debt correctly can be devastating to many people, which makes it more difficult to purchase items with credit in the future. However, by contacting Lexington Law Firm, there may be ways to get the credit fix that consumers need to improve their credit rating.