Monday, January 11, 2010

Not-so Instant Credit Card Approvals

We're always getting hit, especially while holiday shopping, with offers for new credit card accounts at department stores and other retailers. That's likely to continue, but next month the U.S. Federal Reserve will put the brakes on issuing credit credits with little scrutiny during shopping frenzies.

Starting in February, applicants will have to give more information, including income.

Bill Hardekopf, chief executive officer of and author of The Credit Card Guide Book, said that despite protests from retailers, a new study shows that extra screening is needed to make sure applicants can pay for the new debt they will be incurring.

During the November collection period, about $1 of every $8 of receivables was written off as uncollectible, according to Fitch's December Retail Credit Card Index released Thursday.

This is one of the highest levels in history (the all-time high charge-off rate of 12.81% was set in August 2009). Fitch predicts retail card chargeoffs to remain high through the first half of this year.

"This is another example illustrating that consumers and issuers need to be realistic about debt. If you can't afford to pay off the loan in a few months, even if it is a credit card loan, you can't afford the loan. The Federal Reserve is correct to require retailers to verify income. It is a good idea for all issuers, not just retailers." Hardekopf said. "Easy lending may help borrowing and spending in the short term, but many Americans and banks have learned the hard way about the consequences."

Of the families that have credit cards, 96.1% have bank cards, 56.7% have retails cards and 11.9% have gas cards.

Coming Friday: Tips on How to Apply for Credit Cards from

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