Credit card use reflects constant and complex decisions by the credit card holders on consumption, saving, and borrowing: making a purchase, deciding how to pay (between multiple cards, payment options, and cash) and then finally managing their credit card balance by deciding how much of their balance to pay and carry over. Credit cards are the most common first credit experience for younger borrowers, as about 73 percent of Americans have a credit card by age 25. Indeed, half of all Americans adults have at least two cards, and 13 percent have five or more cards. There are 191 million Americans with at least one credit card account, and many have multiple accounts. A reduction in credit card balances can be caused by declining purchases on cards or a faster paydown of revolving balances.Ĭredit cards are the most prevalent type of debt in the U.S., and there are more than 500 million open accounts. We note that by contrast, a reduction in balances is less straightforward to interpret. A large increase in credit card balances is necessarily associated with some amount of consumption. Thus, interpreting the change in credit card balances needs some context. We’re not able to distinguish between borrowers who repay their balances in full each month from borrowers who revolve balances over time. Hence changes in credit card balances can be interpreted to include a mix of new consumption, as well as debt repayment. We measure balances as reported on statements from credit card accounts these include a mix of new debts from new purchases as well as the revolving component of those balances, the carried-over debts from previous months. The chart below depicts the year-over-year percent change in credit card balances-the 15 percent increase seen in the third quarter of 2022 towers over the last eighteen years of data. The first three quarters of 2022 have seen a rapid increase in credit card balances, after they contracted sharply during the early part of the COVID pandemic. Interpreting the Increase in Credit Card Balances Here, we take a closer look at the variation in credit card trends for different demographics of borrowers using our Consumer Credit Panel (CCP), which is based on credit reports from Equifax. On a year-over-year basis, this marked a 15 percent increase, the largest in more than twenty years. An increase in credit card balances was also a boost to the total debt balances, with credit card balances up $38 billion from the previous quarter. Mortgages, historically the largest form of household debt, now comprise 71 percent of outstanding household debt balances, up from 69 percent in the fourth quarter of 2019. This rise was driven by a $282 billion increase in mortgage balances, according to the latest Quarterly Report on Household Debt & Credit from the New York Fed’s Center for Microeconomic Data. Total household debt balances continued their upward climb in the third quarter of 2022 with an increase of $351 billion, the largest nominal quarterly increase since 2007. These changes did not alter our conclusions. Andrew Haughwout, Donghoon Lee, Daniel Mangrum, Joelle Scally, and Wilbert van der KlaauwĮditor’s note: When this post was first published, the data in the chart “Delinquency Rates Remain Low Despite Recent Increases” was shifted backward on the y-axis by one quarter and the axis was incorrect.
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