Wednesday, May 9, 2012

How Could A Credit Card Binge Be A Good Thing?

This is from a WSJ Real Time Economics Blog:

"Talk about March Madness: consumers went on a borrowing spree, adding $21.4 billion in borrowing for the month.

The surge was the largest–in both dollar and percentage terms–since November 2001. What was unusual was an increase of $5.2 billion in revolving debt. The category–which includes credit cards–had been on a downtrend over the last three years. That lack of credit use had limited consumer spending."

I don't see how this is a good thing.  The people with strong credit ratings and FICO scores continue to use their point cards, but pay off the balances.  Card issuers have purged weaker credits from their files, as well as lowering their  limits, increasing fees and margins, and tightening up grace periods for the average consumer, meaning everyone but lawyers, venture capitalists, politicians, and hedge fund managers.  If the average consumer is using this unsecured credit to ramp up spending, which may very well be likely, it won't turn out to be a "good thing."  It could be that consumers are buying Vespas.

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