More and more consumers are saying no to credit cards and shifting to debit cards, but are they permanently changing spending habits or finding a way to make do because lenders aren't lending? It's probably a little of both.

Whatever the reason, new credit card origination was down by 54.5% in November 2009 compared to figures from November 2007. In November 2007, 64 million new bankcards were issued year-to-date. In November 2009, that number was down to just 29.1 million new bankcards year-to-date, according to Equifax's January 2010 new account trends report.But it's not only the number of bankcards being opened, it's also the credit levels that are being approved. The total available credit based on new bankcard credit limits in November 2007 was $26.1 billion, but in November 2009, banks only approved a total of $11.1 billion in new bankcards.

In November 2007, a person with a credit score of 760 or higher could expect to get a credit limit of about $8,000, but in 2009, they were likely to get approved for a maximum of just $4,500 based on Equifax's trend report. People with scores around 660 could get a credit limit of about $4,000 in 2007, but two years later, their maximum was likely to be $2,500.

Banks are also shifting their credit preference to people with higher credit scores. In November of 2007, about 40.5% of new bankcards went to people with credit scores under 660, but in November 2009, only 23.7% could get approved for a new bankcard. Instead, new bankcards went to people with credit scores of 660 or higher. More specifically, 59.5% of all new bankcards went to people with credit scores of 660 or higher two years ago, but by November 2009, that figure had gone up to 76.3%.

Bankcards isn't the only area where banks are cutting credit availability. New home equity lines dropped from $21 billion in November 2007 to $4.9 billion in November 2009. As home prices continue to fall, you can expect this trend to continue.

Because of these changes, people have little choice but to shift to debit cards in many cases if they can't get a credit card. When Master Card released its fourth quarter results last week, the company said debit cards spiked across the globe with a 10.5% gain in the U.S. and a nearly 20% jump worldwide. MasterCard debit volume was $225 billion or about half its credit volume of $448 billion.

Visa reported a 15% growth in debit card use in the U.S. and 19% worldwide, with a total of $702 billion in worldwide debit card use vs. $530 billion in worldwide credit use. Clearly Visa is winning the debit card war.

So are you joining the debit card revolution? if so, be sure you're aware that:
  • Debit cards have fewer consumer protections. Most credit cards offer complete protection against ID theft or fraud. Few debit cards offer that level of protection. Even if they do, you could wait weeks or maybe months before the money from a fraudulent charge, or even an error, is corrected after a debit card transaction. Be sure you understand how errors or ID theft are handled before using your debit card.
  • With debit cards, you can end up with multiple overdraft charges in one day. That can't happen with a credit card.
  • When you travel, a hotel or car rental company could put a hold on hundreds of dollars on your checking account if you use a debit card to check into a hotel or rent a car, which can result in multiple overdraft charges for checks that clear during that hold period. Be sure you have enough cash in your checking account to cover the hold if you use a debit card.
  • If you dispute a charge on a credit card because of a defective item, the charge can be removed from your bill. Debit card users have to battle it out for a refund and do without the cash until that refund is granted.

Whenever you use a debit card, remember that it's cash coming out of your checking account. Be sure you're keeping enough of a cushion in your account to avoid any surprises, such as multiple overdraft charges.

Lita Epstein has written more than 25 books including "The Complete Idiot's Guide to Personal Bankruptcy" and "The Complete Idiot's Guide to Improving Your Credit Score."

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