Lowest credit card balances in 8 years


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It’s been a year like no other, so it’s not entirely surprising that many Americans have changed the way they use credit cards.

Millions of Americans filed for unemployment in 2020, and millions more have moved from the daily commute to the office to working from home full time due to the pandemic. Home orders across the country mean people eat out, shop, and travel less. And as a result, many have seen significant changes in their daily spending. And these changes have a positive impact on their use of credit.

from Experian latest data shows a record decline in credit card balances in 2020, after nearly a decade of steady growth. For eight consecutive years, consumer credit card debt (not just statement balances) hit a record high of $ 829 million in 2019, just before the start of the pandemic.

But over the past year, balances have shrunk by 9%: Total US credit card debt outstanding now stands at around $ 756 billion, the lowest point since 2017.

At least part of this reduction in credit card debt could be attributed to relief from the CARES Act, including the suspension of student loan repayment and the unique $ 1,200 stimulus check. While Congress continues to negotiate further relief, these stimulus measures may have given some Americans leeway to get their high interest credit card debt under control.

People are always opening new credit card accounts

While people still opened new credit card accounts in 2020, it was at a much lower rate. In the United States, consumers opened 12 million new credit card accounts this year, Experian data found, up from 21 million new accounts payable added in 2019.

In recent years, the growth of new accounts generally coincides with the increase in debt balances, the Experian report says. But this is the first time in the 14-year history of this analysis that the company has recorded a drop in the weight of debt alongside an increase in accounts.

This implies that new accounts are used to pay off debt (such as with 0% APR balance transfer cards) or that customers use the new cards responsibly while paying off old debts on cards they already own.

Stay up to date with your new accounts: the Basic FICO® The Credit Monitoring Service monitors your Experian credit report and tracks changes in account status (including late payments), new card / account requests, and balance changes of $ 1 or more.

Consumers charge less on their credit cards

Despite difficult economic conditions, many Americans have not counted on credit to make ends meet. Consumers saw their average credit card balance drop by $ 879.

“The expectation that consumers would rely more on revolving debt during an economic crisis is not exaggerated,” writes Stefan Lembo-Stolba in Experientialdata blog post. “But the reality shows that three-quarters of the way to 2020, US credit card debt has been at its lowest for some time.”

The $ 879 decrease in average credit card balance represents a 14% decrease from 2019. Average individual credit card debt has not declined year over year since 2011.

Lower credit card balances contributed to the lower average credit utilization rate of what we have seen for at least 10 years, at 25% (compared to 29% in 2019).

Bad debts have decreased despite the recession

There were also fewer late and missed payments for credit card accounts in 2020: the percentage of overdue accounts over 30-, 60-, and 90-day periods has all declined.

It was the first time in five years that there had been no year-over-year increase. The last time Experian reported a reduction in delinquency rates was in 2014.

By making payments on time, cardholders protect both their credit score and their overall financial health. Paying on time is the most important factor in calculating your credit score. Not to mention that missing payments result in high fees.

At the end of the line

This year has certainly been a challenge for most American families, but a change in spending habits might not be a bad thing.

If you’ve enjoyed a lower credit card balance and a better credit score, consider how you might continue to practice some of these new habits in the future. The pandemic has allowed many people to rethink their finances, and the end of the year is a good time to think about how you might apply these positive changes going forward in 2021 and beyond.

The information on the Apple Card was independently collected by CNBC and was not reviewed or provided by the issuers prior to publication.

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