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The Points Guy believes that credit cards can transform lives, helping you leverage everyday spending for cash back or travel experiences that might otherwise be out of reach. That's why we publish a variety of editorial content and card comparisons: to help you find a great card to turn your goals into reality.
Our site may earn compensation when a customer clicks on a link, when an application is approved, or when an account is opened with our partners, and this may impact how or where these products appear. While we don't cover all available credit cards, our editorial team creates and maintains all of the analysis of these cards, and our content is not influenced nor subject to review by any credit card company, bank or partner prior to (or after) publication. Please view our advertising policy and product review methodology for more information.
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5 ways the ongoing recession is affecting credit cards and banks — and the upside for some cardholders
Katie Genter is a digital nomad who has traveled full time since June 2017. She writes and edits stories about points and miles, and loyalty programs, often letting her personal experiences color these stories.
January 18, 2021 • 9 min read
The cards we feature here are from partners who compensate us when you are approved through our site, and this may impact how or where these products appear. We don't cover all available credit cards, but our analysis, reviews, and opinions are entirely from our editorial team. Terms apply to the offers listed on this page. Please view our advertising policy and product review methodology for more information.Editorial disclaimer: Opinions expressed here are the author's alone, not those of any bank, credit card issuer, airline or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.
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Quick summary
The pandemic-driven recession has affected banks' approach to credit cards, leading to increased credit reserves and stricter creditworthiness assessments.
Some banks have offered relief options for cardholders struggling to make payments, though accepting assistance can result in account restrictions or reduced credit limits.
Issuers have shifted focus toward attracting high-creditworthy customers, with some offering elevated bonuses and new premium travel products.
Banks have also purchased large amounts of airline and hotel points, potentially leading to more generous incentives for select cardholders.
What to consider
Relief programs may freeze your account or rewards, and could result in a lower credit limit.
Applicants with borderline credit or lower reported income may face increased difficulty getting approved for new cards.
Some incentives and perks introduced during the pandemic were temporary and may no longer be available.
What you'll miss from the article
A detailed look at how the K-shaped recession is shaping banks' strategies, including specific relief options, retention offers and industry trends.
Generated by AI with support from our editorial team.
Update: Some offers mentioned below are no longer available. View the current offers here.
The coronavirus pandemic pushed the global economy into a recession. As such, some banks prepared for major defaults and reconsidered customer creditworthiness. But, at the same time, banks also worked to retain valuable customers.
Initially, many people expected the U.S. recession to be V- or U-shaped. But the recession now appears K-shaped. After all, some industries have recovered while others continue to struggle. So today I'll look at some of the ways this K-shaped recession may affect current cardholders and consumers in the market for a new rewards credit card.
Banks have built credit reserves
Even in standard times, most banks anticipate that some of their customers will default on payments. However, quarterly earnings reports in 2020 showed most banks increased their credit reserves in early and mid-2020 to prepare for higher-than-normal defaults. In particular, these reports showed:
Capital One increased its allowance for credit losses by $3.6 billion in the first quarter and by $2.7 billion in the second quarter before decreasing its reserve by $742 million in the third quarter.
American Express increased its reserve by $1.7 billion in the first quarter and by $628 million in the second quarter before decreasing reserves in the third quarter.
As the pandemic and its subsequent recession linger on, banks will continue to limit their losses as much as possible while still planning for the long term.
It's best for your credit score and wallet if you pay your bill on time each month, ideally in full, to avoid paying interest on your balance. But as unemployment remains high, some cardholders aren't even able to make minimum payments.
If you can make your minimum payment, you should do so. But if you can't find the funds, you may want to ask for relief from your issuer. This relief may take the form of decreased interest and fees, or you may be allowed to delay your monthly payment for a few months.
But it's important to read the terms carefully before accepting relief, as it could result in the bank freezing your account and rewards. And some cardholders reported their bank decreased their credit line after they requested assistance. So you should only ask for help if you genuinely need it. After all, doing so may mark you as a risk.
These are strange times. After all, someone with a good credit score who historically reported high income might suddenly be out of work and unable to pay their bills. As such, banks are continuing to reassess the creditworthiness of their current cardholders. In doing so, some banks have cut credit limits for select cardholders.
During the pandemic, many issuers leaned into cash-back rewards cards due to consumer interest in these cards. Some issuers also paused applications for cards designed for less-creditworthy customers and for cards that tend to attract higher-risk customers. After all, issuers are looking to limit risk.
But, especially as the K-shaped recession sees select industries and consumers recover, we've seen some card issuers actively seek new cardholders for premium travel rewards cards. In particular, we've already seen several issuers offer elevated welcome offers and sign-up bonuses. We've even seen new products such as the United Club Infinite Card and the Chase Freedom Flex launch amid the pandemic.
In previous times of financial uncertainty, airlines leveraged their credit card partnerships for an economic boost. For example, TPG's Zach Wichter reported banks had purchased millions of miles from American Airlines, Delta and United during past financial troubles.
In May 2020, TPG's Ethan Steinberg found several major travel brands had already raised emergency funds by preselling points. We don't know the rate at which these travel brands sold miles or points to banks. But purchases like these may mean banks will be more generous with welcome offers, sign-up bonuses and bonus category earning rates.
In this time of uncertainty, banks want to attract and retain cardholders with high creditworthiness who will spend a lot on their cards but have a very low risk of default. As such, banks may offer higher welcome offers and sign-up bonuses to select cardholders. But current cardholders can also benefit in two primary ways.
Incentives for spending
Issuers and their partners introduced various incentives to encourage spending on some cards during the pandemic. Many of these incentives ended at the end of 2020. But some card issuers have introduced new perks to encourage card use and loyalty. For example, there are some excellent Amex Offers to be found. And Amex recently unveiled a new slate of limited-time benefits for several of its cards.
I haven't had any luck getting retention offers on travel rewards cards I've considered canceling during the pandemic. And TPG's Chris Dong wasn't able to secure a retention offer for The Platinum Card® from American Express, although he ultimately decided to keep his Amex Platinum anyway.
But some cardholders have gotten retention offers when they've called to cancel their card. For example, TPG's Victoria Walker recently snagged retention offers on two of her cards. Specifically, American Express gave her two retention offers totaling 27,500 American Membership Rewards points within one week. So it's worth calling to see offers on your account before simply canceling your card.
Several card issuers are now looking for high-quality, low-risk applicants after purchasing a stockpile of points and miles from their cobranded partner airlines and hotels. So it's not surprising that we've seen — and will likely continue to see — lucrative sign-up bonuses. However, it may take a healthy credit score and credit history to be approved as most issuers are still bearish regarding new applications.
Comments
By commenting, you agree to our Community Guidelines to help create a positive space for conversation. The responses below are not provided or commissioned by the bank advertiser, our partners, or The Points Guy (“TPG”). They have not been reviewed, approved, or otherwise endorsed by any of these parties. All responses are submitted by individual contributors, and neither the bank advertiser, our partners, nor TPG are responsible for ensuring that all posts and/or questions are answered.
