Credit Card Debt Down–Yet Again

Let’s start with the good news. The Federal Reserve published Friday its latest statistical release about consumer credit. The figures, which relate to June, show that “revolving credit” (nearly all of which is credit card debt) was down again that month, and now stands at $826.5 billion. Out of the last 21 months, according to the Los Angeles Times, this form of debt has fallen 19 times.

Given that the Fed reckons that outstanding revolving credit stood at $958.1 billion in 2008, that means that Americans have paid back about $131.6 billion to credit card companies in two years, right? Wrong. As this column has pointed out previously (and the Philadelphia Inquirer confirmed last month), a large proportion of the reduction is accounted for by “charge offs”, which is what the industry calls debt that it writes off because it’s uncollectible and passes to collection agencies.

In fact, the Inquirer says that, in the first quarter of 2010, about 40 percent of the apparent reductions in credit card balances was actually accounted for by charge offs. And some think that’s a conservative estimate. Still, if you make the assumption (and statisticians are likely to abuse you if you do) that 60 percent of the last two years’ reductions were genuine pay downs, that still means that Americans have paid off their credit cards to the tune of nearly $80 billion.

Credit Reports and Children

At least your young children don’t have to worry about their credit card debt and credit reports, do they? Again, the answer, regrettably, is a qualified Wrong. Because, last week, a number of newspapers covered a story about the growing incidence of people stealing children’s identities, and running up debts in their names.

This grisly trend is apparently enabled by the current social security number (SSN) system. Apparently, criminal gangs now use a combination of public sources and online trawls to identify SSNs that currently have no credit record attached to them. They can then steal that identity in order to borrow money.

Of course, children’s SSNs generally go unused for at least 16 years, which makes them especially vulnerable to this crime, and the Christian Science Monitor says that seven percent or more of all identity theft cases that are reported affect these youngsters.

If you’re tempted to check your kids’ credit reports, the Monitor cautions that you might be making things even worse. In doing so, you could create a credit file in their names, which may make them even more vulnerable to identity thieves.

Credit Scores and College

What if your son or daughter is off to college, and has a credit card application turned down because of identity theft? Well, the first thing is to report it, and the web sites of both the Identity Theft Resource Center and the Federal Trade Commission provide advice about what to do.

However, it’s likely to take some time to resolve the matter, and during that period, you may have to:

• Issue an authorized card in his or her name on one of your own accounts, which may–depending on the child–involve a leap of faith too far, or

• Find one of the better secured credit cards, which requires a deposit, but could count toward building a credit score while the identity theft is being sorted out, or

• Source a good prepaid credit card, though you need to be careful about high fees with these

Among the best of the last two types of product are:

• Secured credit cards: Public Savings Bank Secured Card

• Prepaid cards: The Mango� MasterCard� Prepaid Card

Published 08/09/10 (Modified 07/09/14)