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Commentary: Card Hub's CEO offers 6 credit predictions for 2012

Papadimitriou says not to expect any more financial reform legislation this year.

January 2, 2012

The holiday season tends to be a time for nostalgia and reflection, but as the calendar turns from 2011 to 2012, we will undoubtedly begin looking to the future, making resolutions, basking in the potential that comes with new beginnings and wondering what the New Year has in store. But why wait? Foresight is the key in finance, so let's make some predictions for things that will affect you in 2012.

Armed with an ability to see into the future, most consumers, analysts and even politicians would all be interested in the same thing: the fate of our European brethren. The European debt crisis is not only a hot-button topic, but also what our personal finances largely hinge upon in 2012. Though countless variables therefore remain undefined, we can nevertheless make the following educated guesses for the state of credit:

1. The European debt crisis will not further impact credit availability for U.S. consumers. There are three general scenarios for how the European debt crisis will play out: 1) radical changes will be made in order to provide for long-term financial prosperity on the continent; 2) problem nations will default, turning the Great Recession into Act 1 of a double-dip recession; 3) The European Central Bank, together with European governments, will implement stop-gap measures, ensuring neither a permanent solution nor short-term fiscal calamity.

If the last few years are any indication, we can expect scenario three to come to fruition in 2012, which means no surprises moving forward.

2. Overall credit availability will increase. As we all know, available credit withered during the Great Recession but has since bounced back. Expect this trend to (slowly, but steadily) continue in 2012, as the increasingly healthy portfolios of credit card companies, mortgage brokers and other lenders will translate into more relaxed underwriting standards and more lines of credit being extended to more consumers.

3. Consumer credit scores will rise. With the unemployment rate falling from an average of 9.6 percent for 2010 to 9.03 percent through October 2011, more credit available, and an upwardly trending economy, it's inevitable that credit scores will rise. In other words, decreasing unemployment means more people have been able to pay their monthly bills over the past year, and since credit improvement is a gradual process, we can expect to see tangible credit score benefits in 2012.

4. No new personal finance reform legislation will be passed. Washington's attention will be on broader economic issues as well as the upcoming election, so don't expect additional legislation to follow in the path of the CARD Act of 2009 or the Wall Street Reform and Consumer Protection Act, which, of course, contained the Durbin Amendment.

5. Credit card and prepaid card use will trend upward, while debit card use will fall. The writing was on the wall for debit cards as soon as the Federal Reserve, in accordance with the Durbin Amendment, capped debit card interchange fees at 24 cents per transaction on Oct. 1 and wiped out $9.4 billion in annual revenue for major banks. Banks have since made use of debit cards far less appealing, while also improving rewards for credit card users. Expect more major banks to offer prepaid cards in 2012 and to position them as alternatives to debit cards and checking accounts.

6. Credit card companies will continue offering lucrative sign-up offers. In 2011, we saw initial rewards bonuses skyrocket into the hundreds up dollars and 0 percent introductory rates last as long as 24 months. If you didn't take advantage of this, you needn't worry because the trend will continue in 2012. The reason is that even though credit availability will increase, the Great Recession taught banks how important it is to have a low-risk customer base, and extra points, miles or cash back as well as 0 percent intro rates are a useful tool for garnering the business of consumers with the highest credit scores.

Ultimately, 2011 will closely resemble 2012, at least from a personal finance standpoint, but that's not necessarily a bad thing.

Last year was a great year for credit card users, as it was the first full year they enjoyed increased transparency and protections brought about by the CARD Act. A more consumer-friendly credit card environment, together with the expectation that the European debt crisis will be contained and the U.S. economy will continue to recover, makes me believe that 2012 will be better than 2011.

With that being said, Happy New Year, and may 2012 be prosperous for all.

Odysseas Papadimitriou is a personal finance expert and the CEO and founder of Evolution Finance, the parent company for Card Hub, a credit card and gift card portal in the U.S. Prior to that, Papadimitriou was a senior director with Capital One's credit card division.