Managing credit lines requires finding a balance between borrowing and paying back responsibly.

Editor's Note: The following analysis has been provided by the Consumers Bankers Association. In this report, the main focus is on credit line management, which is a crucial tool that issuers use to provide credit card access while also managing risk and customer delinquencies. The data presented in this report shows how banks have adjusted credit lines in response to various economic conditions, particularly during the pandemic.

At its core, credit line management is a balancing act for banks. On one hand, they want to provide customers with access to credit to help them manage everyday expenses, unexpected costs, and temporary cash flow needs. On the other hand, they need to carefully manage risk to ensure that customers are not overextended and can reasonably repay their debts.

To achieve this balance, banks use a variety of tools, including setting or adjusting underwriting standards, pricing credit based on risk, and setting or adjusting credit limits. While much attention is often given to application approvals and annual percentage rates (APRs), the management of credit lines is just as important. This allows issuers to expand access to credit while also mitigating the potential losses from delinquencies.

For example, a customer with a lower credit score may still be approved for a credit card, but with a lower credit limit. This allows them to have access to the credit they need without being overexposed. The COVID-19 pandemic serves as a real-world example of how credit line management plays a crucial role in managing risk and promoting sustainable borrowing.

At the start of the pandemic, when uncertainty was high and the economy experienced a brief recession, banks reduced credit limits and slowed down credit line increases. As the economy stabilized and government stimulus measures were implemented, delinquencies declined, payment performance improved, and consumers paid down credit card balances. However, as inflation began to increase and put pressure on consumers' ability to meet debt payments, credit line management shifted again.

Banks started to decrease credit lines and tighten access to credit in order to limit their exposure to risk. This was particularly true for the riskiest borrowers, who experienced a higher rate of credit line decreases compared to other cardholders. Despite these changes, credit line management played a crucial role in maintaining access to credit throughout the pandemic.

Credit card spending represented over a fifth of GDP as consumers used credit cards to navigate the turbulent economic conditions and drive the post-COVID recovery. The data also shows that credit line management has been effective in improving credit card payment rates and behavior, with payment rates remaining above pre-pandemic levels. In conclusion, credit line management is a dynamic tool that allows issuers to adapt to changing economic conditions and customer financial performance.

It serves as a crucial balancing act between providing access to credit and managing risk, and the data presented in this report showcases how banks have used this tool during the pandemic. As the economy continues to recover and adapt, credit line management will remain an essential tool for issuers to promote sustainable borrowing and manage risk.