Credit Card Usage Down by 8 Million Consumers
Dec 1st, 2010 @ 8:15 PM by Amber Nelson
During the past year, over 8 million American consumers have stopped using credit cards for their purchases, according to credit bureau TransUnion.
Gerri Detweiler of Credit.com was quoted in a CNN Money blog as saying it is
“unprecedented” for consumers to “abandon” their credit cards. “I’ve been covering this since 1987 and I don’t recall numbers like that ever going down,” she said. “They’ve always gone up.”
What can account for this dramatic drop in credit card use? There are basically two things at play here. First, many consumers with good credit are taking fewer financial risks and just paying with cash or debit card.
“When people are confident about their financial situation and the economy, they feel more confident about using credit,” added Detweiler. “When they’re scared or nervous about their own economic situation, or the economy in general, then they’re more likely to buckle down and avoid debt altogether.”
The proof of that is that average credit card debt per consumer fell in the third quarter of 2010 by more than 11 percent down to $4,964 while credit account delinquencies also dropped off, by 25 percent.
The other part of this equation is that credit card companies have cut off many borrowers because they are too delinquent and have resulted in too many losses. The companies have charged-off thousands of their riskiest accounts, leaving those consumers without a credit card option.
“The recession really drove high credit card losses over the last couple years and the credit card industry reaction was to choke off new credit,” said Ben Woolsey, director of marketing and consumer research for Creditcards.com as quoted in that same article. “They were also closing down dormant accounts and accounts that appeared risky.”
Chances are though that Americans, poor and financially stable alike, will return to their credit cards as the economy starts to stabilize again.
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.