Exclusive: U.S. lenders are willing, but consumers still wary

By Helen Chernikoff

NEW YORK (BestGrowthStock) – U.S. lenders are extending their hands, but consumers are just not ready to dance.

Instead of borrowing, they are paying down old debt, according to data that Equifax Inc (EFX.N: ), one of the largest U.S. credit bureaus, provided exclusively to Reuters.

In September, balances on credit cards issued by banks sank 15.2 percent from an October 2008 peak to $708 billion, approximating 2005 levels.

“People are shedding debt,” said Michael Koukounos, an Equifax vice president. “If they’re spending, it’s not coming from debt.”

The data is based on Equifax’ 200 million-plus files of U.S. consumers using credit.

Yet to lenders, consumers are looking increasingly appealing.

The number of loans that are late is decreasing for credit cards, home equity lines of credit or car loans. That means fewer defaults are in the pipeline.

And the average credit score, 704.2, is up 0.4 percent since last year because consumers are voluntarily reducing their debt.

The credit risk score forecasts the likelihood a consumer will fall 90 days or more behind on debt within two years, with 850 the highest score. The higher the score, the less likely a borrower will fall behind on debt.

Of course, rising credit scores make consumers better credit risks, and make lenders want them to increase their debt.

That is why, for example, lenders are issuing new credit cards. According to the most recent Equifax data available, they originated 2.9 million cards in July, a 12.8 percent year-over-year increase. Last July, such issues were down 54 percent.

Banks also raised their cards’ credit limits 1.3 percent to $10.9 billion in July.

Banks even issued 800,000 credit cards to subprime borrowers, those with credit scores less than 600. That is 34.3 percent more than last July.

But consumers are still resisting debt’s allure, so powerful just a few years ago. In October of 2008, consumer debt outstanding peaked at $11.5 trillion. Now it is down 7.6 percent, to $10.7 trillion.

At the same time, personal saving is up at 5.8 percent in August from 5.7 percent in July.

“Lenders are starting to lend more, but I don’t see consumers increasing their debt load,” said Koukounos.

(Reporting by Helen Chernikoff, editing by Matthew Lewis)

Exclusive: U.S. lenders are willing, but consumers still wary