Credit card trends paint varied picture

Experian, one of the big credit bureaus, unveiled its latest credit card use study yesterday, which revealed three particularly interesting figures:

1. At the end of 2010, the average consumer owed $4,200 in credit card debt.
2. That was down just four percent from 2009.
3. Each consumer has an average of 1.97 credit cards, a 23 percent decline from 2007.

Credit card reductions have an unexpected side effect. With fewer cards to spread debt, consumers tend to have higher balances on cards they've retained. Those higher balances can have a detrimental impact on credit scores.

Experian says 23 percent of its credit score is based on a consumer's "credit utilization ratio," which is the percentage of available credit on a card. Anything above 30 percent is likely to set off alarm bells, and Experian says many more credit card users are falling into this category.

"We want consumers to understand that overspending at the holidays or at any other time of year can often have broader implications to their overall fiscal fitness," said Experian vice president of public education Maxine Sweet in a statement. "By carrying over credit card balances and utilizing a significant portion of their available balance, they can potentially negatively affect their credit scores, which can in turn, hurt them when it comes to applying for other types of credit down the line including mortgages and car loans. It's important for consumers to get that debt under control before it has a lasting impact on their credit scores."

Credit card use differs by group

According to The New York Times, detailed reading of the Experian data reveals a dichotomy in the way people were putting on credit card debt during the 2010 holiday season. Some consumers, confident of an economic recovery, were comfortable spending on treats and luxuries. Others, especially the unemployed or those with medical issues, were using credit cards as lifelines to help keep their heads above water.

Credit card applications up

Meanwhile, a New York Federal Reserve study shows that the number of successful credit card applications has risen for the first time in nearly three years. In the first quarter of 2008, there were nearly 500 million credit card accounts open in the U.S., but by the third quarter of 2010 that figure plummeted to 378 million. In the fourth quarter of 2010, the number inched up to 380 million. Of course, that's a very small increase over a very short period, and it's way too soon to start calling it a trend. But it may just be another sign of renewed confidence in economic recovery. And that would be good news for all of us.

Published 03/03/11 (Modified 04/20/12)