Americans Beginning to Use Credit Cards More Freely

Americans Beginning to Use Credit Cards More Freely

U.S. consumer credit grew in March at its fastest rate in more than a decade, according to the latest data released by the Federal Reserve on Monday. The aggregate amount of outstanding credit card balances rose following two consecutive monthly declines and is now back above the $800 billion mark. Both the student and auto loan categories spiked, pushing the total upward and very close to the pre-Lehman record-high.

There have been several reports over the past few months showing that credit card spending in the U.S. was growing at an accelerating rate for at least a year, including one by payment processor First Data, which also showed that debit card use was growing at a decelerating rate. And yet, so far Americans have been able to keep the aggregate amount of outstanding credit card balances, even after the latest spike, at a level very close to the post-Lehman low that was reached in April of last year. What made this possible were the continually declining delinquency and charge-off rates and the rising monthly payment rate (MPR). But now it looks as if the credit card spending growth may have finally started to overcome the rate of deleveraging.

Credit Card Debt up 7.8% in March

Americans Beginning to Use Credit Cards More FreelyThe total amount of outstanding consumer revolving credit in the U.S., which is comprised almost exclusively of unpaid credit card balances, rose in March by 7.8 percent, or $5.18 billion, pushing the total up above the $800 billion threshold again, to $803.63 billion. That is only 1.74 percent above the post-Lehman low of $789.6 billion recorded in April of last year, which was also the lowest total since October 2004.

Since the onset of the financial crisis in September 2008, revolving credit in the U.S. had been falling continually, and precipitously, until the end of 2010. Then, in 2011, half of the Federal Reserve’s monthly releases reported an increase in the outstanding credit card total, including each of last four. Now, following the consecutive declines in January and February and the spike in March, the current total of $803.6 billion is lower by 17.46 percent, or $170 billion, than the $973.6 billion pre-crisis high.

Overall Consumer Credit Up 10.2%

The non-revolving portion of the consumer debt total, made up of student loans, auto loans and loans for mobile homes, boats and trailers, but excluding home mortgages and loans for other real estate-backed assets, spiked in March. The Fed reported a $16.17 billion — or 11.3 percent — increase from the previous month, lifting the total up to $1,738.7 billion. These gains, although substantial, are still lower than the ones recorded in January when we saw the biggest dollar increase since November 2001.

The non-revolving total has risen in every month since July 2010 with the exception of August 2011 when it fell by 6.4 percent. The current amount is higher by 7.5 percent, or $121.3 billion, than the pre-crisis peak of $1,617.4 billion, reached in July 2008.

The total outstanding consumer credit in the U.S. — the sum of the revolving and non-revolving debt numbers — rose by 10.2 percent, or $21.36 billion, to $2,542.3 billion in March, its seventh consecutive monthly increase and the biggest spike since November 2001, in both absolute and percentage terms. The new total is still lower by $45.8 billion, or 1.77 percent, than the all-time high of $2,588.1 billion, measured in September 2008, but the gap is narrowing very rapidly.

The Credit Card Takeaway

Americans Beginning to Use Credit Cards More FreelyThe credit card delinquency rate in March was 2.73 percent, the lowest one ever measured, according to Moody’s. The charge-off rate for the month was at 4.94 percent, the lowest one in five years. The monthly payment rate (MPR) — the rate at which Americans are repaying the principal of their outstanding credit card balances — was at 22.11 percent, an all-time record and higher by 5.70 percent than the March 2009 level, which translates into a 35 percent increase in the principal amount paid back at the end of the month.

So the rise in revolving credit hasn’t been caused by reckless consumer spending. On the contrary, Americans’ credit card accounts, on aggregate, were in a better shape in March than they have been in a very, very long time. What the data seem to indicate instead is that consumers are once again feeling more comfortable using their credit cards and are doing so well within their means.

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