Right now, trying to read the signals coming from the American economy is like trying to read the signals on your first ever date. You know what you want to happen, but what you’re seeing seems either incomprehensible or contradictory, and you’ve no real idea what it all means. Don’t worry. If you feel like a gauche teenager, imagine what it’s like for professional economists, many of whom only pretend to understand much more than you.

Credit card trends

According to the Federal Reserve’s Quarterly Report on Household Debt and Credit, published this month, the total household debt for all American consumers stood at $11.7 trillion in the second quarter of this year. That’s a scary figure, but it’s down $812 billion from its peak in the third quarter of 2008. And, of course, most of it (74 percent) is made up of mortgage loans, which most people regard as “good” debt.

Credit card debt comprises about six percent of the total, a proportion that has remained fairly consistent over the last few years. That, of course, means that it has shrunk pretty much in line with all debt. However, this isn’t just a reflection of a new prudence on the part of consumers. Much of the reduction is due to credit card companies wiping balances from their books when they pass “uncollectible” accounts to collection agencies. Foreclosures similarly accounted for some of the reduction in mortgage debt.

Those credit card companies were also largely responsible for the considerable drop in open credit accounts. Four million credit cards were withdrawn by issuers or cancelled by customers during the first quarter of 2010, and, by the end of that period, the number of credit card accounts had dropped by 23.2 percent compared with the second quarter of 2008. The last time so few cards were in circulation was a decade ago.

Credit cards and credit use

Overall, reduced debt and the fall in the number of credit cards are probably good things, certainly when it comes to financial solidity. However, they have their downsides. It is hard to see how the recovery can gain momentum until those who can do so begin to borrow and spend more again, thus creating the demand that gives employers the confidence to hire staff and give people raises.

What’s almost certainly bad for the economy is people who can’t afford debt borrowing more. The Fed report says that in the first quarter of 2008, consumers were using only 23 percent of their credit card limits. The same time this year they were using 28 percent. It’s sobering to think how many people who are newly unemployed or working part time are now using their remaining available credit to pay the rent and put food on their tables.

Credit scores and credit utilization

The proportion of your available credit that you actually use forms a significant part of your credit score, and if you’re edging closer to your limit you should probably see how that’s affecting your credit report. Man y services are available to help you monitor your report, not all of which deliver good value. However, three that are worth looking at more closely are (in alphabetical order):

• Equifax Credit Watch Gold With Score Power
• Smart Credit
• Transunion – 3 bureau Credit Monitoring

Published 08/19/10 (Modified 04/23/12)