Experts unsure whether record U.S. credit card debt signals new crisis

Inside Subprime: September 6, 2017

By Caroline Thompson

According to a release from the U.S. Federal Reserve, American consumers now carry a combined total of $1.021 trillion in outstanding credit card debt, just a hair more than the previous record of $1.02 trillion, which was set during the Great Recession in 2008. While this might seem like it bodes badly for the global financial market, many experts are cautiously optimistic despite the growing number of subprime cardholders and the steep hike in subprime auto lending over the past few years.

Why? For one thing, while borrowing via credit cards is up, so is the average borrower’s credit score. In 2008, the last time credit card debt was this high, the average American FICO credit score was 690. Today, it’s sitting pretty at 700. Additionally, more people than ever have access to more credit than ever. According to TransUnion, as of May 2017, 171 million American consumers had at least one credit card in their wallet, and the credit limits of the most trustworthy borrowers has also risen, from $29,176 in 2010 to $33,371 in the first quarter of 2017.

“The card market went through a transformation after the recession as more lenders opened up access to subprime and near prime consumers,” said Paul Siegfried, senior vice president for TransUnion. “The competition for super prime consumers has become fierce, and we are seeing it manifest in higher total credit lines.”

But these “super prime” customers, or borrowers with high credit scores and few red flags on their credit reports, aren’t the only people with newfound access to credit lines. Subprime borrowing is also on the rise: TransUnion found there are now 2.3 million more subprime credit card holders than there were in early 2015, a sign that have begun to loosen the strict borrowing standards put into place after the financial crisis. And as we reported last week, access to credit cards is unlikely to help subprime borrowers improve their credit scores.

Subprime borrowers are, by definition, much more likely to default on loans become delinquent on credit card payments, so it should come as no surprise that credit card delinquency rates have grown from 1.50 percent in early 2016, to 1.69 percent in the first quarter of 2017. Still, Siegfried says this should be no cause for alarm:

“The recent surge in subprime cards has contributed to an increase in the card delinquency rate at the start of the year, but from a pre-recession, historical perspective, we are still at low levels of delinquency,” he said.

While the majority of Americans either pay off their credit card debt every month, or don’t use their cards at all, 44 percent of credit card holders in the U.S. do carry over a balance from month to month, and often pay high interest rates and late fees when they can’t make their minimum payments on time. It’s hard to tell from the numbers whether the ever-growing rate of credit card debt will help or hurt the economy in the coming months and years, but experts

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