More Households Using Credit Cards But Debt Has Decreased Significantly
Auto loans have steadily been rising during the last six year, but an increase in credit card balance is something new. When the recession hit, households reduced their credit card use until two years ago. Since 2014, balances have been increasing by roughly $70 billion.
The report highlights how evolved the U.S. credit industry has become - from the financial crisis to a renewed credit state.
For five years, from 2008 to 2013, household debts has decreased by over $1.5 trillion. However, auto loan and student loan balances started to rise, mortgages were next and now credit cards. Household debt balances are $400 billion under the 2008 peak.
When financial institutions cut credit off, the credit card debt dropped because households refused to use them. The effects were seen especially among folks who have low credit scores. However, today, these folks are using credit cards again. About 58.8 percent of people with credit scores of 620 to 660 have and/or using credit cards. 50 percent of people with credit scores under 620 are using credit cards, which is an increase from 45.6 percent just two years ago.
88 percent of folks that have high credit scores also have credit cards – something that hasn’t changed in the last 10 years.
Credit cards, while useful, are also dangerous. While moderate usage assists households at the necessary times, they do have high-interest rates that can get out of control. In the recession, many people were unable to pay off their balances, and they fell into delinquency. As it stands for the moment, credit reports don’t see any distress signals.
In essence, the report shows there’s a positive ongoing trend in household debt, with delinquency rates improving even with more credit becoming available.
Less than one percent of credit card balances are between 90 and 180 days late, which is the lowest since 2003. Serious derogatory balances, such as one the banks write off, are also at record levels – 6.2 percent.
Delinquencies in credit card and other debt have greatly improved. Nearly two percent of mortgage balances were delinquent during the second quarter, the lowest since 2007. The amount of new foreclosures is the lowest in 18 years.
Despite debt delinquencies improving, student loans are still stubborn. Roughly 11 percent of these loans are in delinquency, which has seen little improvement during the last few years.