More debt and fewer rewards: Credit card trends to watch in 2023 (2024)

If you want a good prediction of tomorrow's economy, watch what moves credit card issuers make today.

"It's almost like watching a crystal ball to some extent," John Ulzhemier, a credit expert formerly of FICO and Equifax, says of card issuers. "They are usually ahead of the curve with respect to reacting to downturns in the economy."

This time, issuers will likely turn off the spigot of generous incentives and easy credit in 2023 in response to a weaker economy, according to analysts.CNBC Select spoke to credit experts about emerging credit card trends, how they may impact consumers and how you can prepare.

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As more Americans than ever applied for credit cards in 2022, credit card balances have also ballooned in record numbers.

"We expect to see those card balances exceed $900 billion by the end of the year this year," says Paul Siegfried, senior vice president and credit card business leader at TransUnion. "Now, that's a level that we have never really seen."

Analysts expect balance growth to slow down, but still continue, in 2023. One of the reasons driving this trend, according to Siegfried, is that more consumers carry credit cards. That spreads more risk among more borrowers, which naturally leads to greater debt and delinquency overall.

Another factor that could cause higher balances in 2023 is how consumers use their cards in times of economic uncertainty. In a prolonged high-inflation environment with slowing wage growth and potential increases in unemployment, people tend to use credit cards to help manage expenses they otherwise would pay with cash. This leads to bigger balances for individuals, which sometimes turns into difficult-to-manage debt.

If you avoid interest payments by consistently paying your credit card bill in full every month, cards in 2023 will continue to give you the rewards, purchase protection, and other perks without burying you under a pile of debt.

"But if you're among [those] who are paying interest rates around 20% or more, that's a slippery slope," says Ted Rossman, credit card senior industry analyst at Bankrate. "Credit card debt is easy to get into and hard to get out of."

In 2023, you might not only find yourself in more debt, but the debt itself might also get more expensive to service, depending on how well the economy handles inflation. If the Federal Reserve continues to hike its benchmark interest rate to battle rising prices, credit card interest rates will increase as well.

That said, even if we see no further interest hikes in the new year, it's hardly any consolation.

"Interest rates are already terrible," Ulzheimer says. "It's not like they're gonna go from good to bad. They're gonna go from bad to still bad."

If you carry credit card debt, you should prioritize getting rid of it. Rossman and Ulzheimer both recommend using a balance transfer credit card which allows you to move high-cost debt and pay it off with no interest during a promotional period.

"Don't add any more purchases," Rossman says. "Divide what you owe by the number of months in your 0% term and try to stick with that level of payment plan."

Some balance transfer cards to consider include the BankAmericard® credit card, Wells Fargo Reflect® Card and the Citi Simplicity® Card as they currently offer the most competitive introductory interest-free periods on balance transfers among major issuers. Note, however, that you'll probably need at least good or excellent credit (scores 670 and greater) to qualify for a balance transfer card.

In 2021, the heated competition between card issuers led to a bonanza of bonus offers and attractive rewards programs for cardholders.

"As I would say, 'What a great time to be a consumer, right?'" Siegfried says.

All the experts we've spoken to agree that it's unlikely we'll see issuers use those aggressive customer acquisition tactics in 2023.

Bobbi Rebell, CFP and author of 'Launching Financial Grownups', also adds that due to inflation and a possible recession, most credit cards might incentivize consumers with rewards for everyday expenses and essentials, such as groceries and gas.

"We'll also likely see more credit card companies pushing flexible payment options," she says. "Some are already doing this, where they flag on your credit card statement that you can pay over time at 0% interest."

While a weakening economy might lead to less appealing offers, it's also possible that those conditions prompt issuers to target a smaller but more lucrative audience.

"For this reason, we might see some interesting offers pop," Rossman says. "The best offers probably won't last long, and they won't be accessible to everyone, but we could see elevated competition, especially for high spenders with strong credit profiles."

Speaking of credit, you might have a harder time getting approved for credit cards in 2023 if your credit score leaves a lot to be desired (think scores below 670).

Next year's unemployment numbers will play a big part in how much issuers tighten their underwriting standards, according to Siegfried. TransUnion uses Oxford Economics' unemployment forecast, which currently stands at 4.8% for 2023. If that turns out to be accurate, lenders will probably leave most of their underwriting policies unchanged.

However, Rossman points out, higher unemployment and a slowing economy could limit access to credit for people with lower incomes and lower credit scores.

If your credit score could use some work, it's best not to rely on applying for a new card when you need help with your cash flow. If you can, consider starting or adding to your emergency fund to tie you over in tough financial times. Siegfried also suggests revising your budget and checking where you can cut expenses.

If you already have debt, do your best to pay it down. Rossman recommends looking into non-profit credit counseling agencies which will work with you even if your credit isn't great.

You may also want to consider signing up for *Experian Boost™, which is a free service that lets you boost your credit score for paying utility, cell phone, streaming and other eligible bills on time.

During the past two years, cardholders have enjoyed easy access to excellent credit card offers. In 2021, Americans were eager to spend and travel again, and issuers did their best to compete for their business. Banks doled out elevated welcome bonuses, new cards and exciting perks on existing products all in an effort to woo customers –and it worked.

About 77 million new credit card accounts were opened in 2021, according to TransUnion data, breaking the previous high of about 67 million which occurred in 2019.

In 2022, most consumers continued to ride that high. The credit bureau projects that new credit card account openings will have shot to a whopping 88 million by the end of the year. However, the possibility of a recession means the industry is likely to tighten in 2023.

It's an uncertain time for the economy. To protect your financial well-being, prioritize reducing debt over earning rewards, shore up your emergency fund and keep an eye on your budget.

The silver lining lies in the card industry's overall cautious optimism. While debt might get more expensive in response to interest hikes, credit cards are likely to stay mostly accessible. Plus, if you don't carry any balance, rewards cards can help you offset the rising costs if you manage them well.

"As they say, credit cards are like power tools: They can be dangerous, or they can be really useful," Rossman says. "Using credit cards smartly can put extra money back in your wallet."

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