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Report: We've learned our lesson about using credit cards

Posted: 9/27/2013 8:00:00 AM
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From our mostly good news department: Fewer Americans are carrying onerous balances on their credit cards, most are paying less interest on those debts and many are working harder not to carry from month to month any credit card balances at all.

A statistical report issued Thursday by the American Bankers Association strongly demonstrated that U.S. credit card holders learned a few valuable lessons from the Great Recession, though they still have some work to do.

"The fact that credit card debt has declined is a welcome development," said Melinda Opperman, senior vice president of Springboard Nonprofit Consumer Credit Management , a nationwide credit counseling and financial education organization. "But there are some things we should consider before we celebrate too much."

Among them, she said, is the diminished availability of card-related credit, a consequence of higher credit score hurdles and other qualification standards now imposed by card issuers.

"This is troublesome, because access to credit is an important driver of mobility," Opperman said. "We try to teach people to use credit responsibly, but we don't want them to avoid using credit altogether.

"Using credit well builds one's credit rating, which helps gain access to housing, loans, employment and more," she said. "If the recession has led to fewer people gaining access to credit, then some people won't have the opportunity to establish a credit history and work their way up through the middle class."

David Jones, president of the Association of Independent Consumer Credit Counseling Agencies, cited the widely shared pain of the recession as a leading factor in our newfound discipline when it comes to credit cards.

"This conservative trend in credit card usage appears to be the result of a shift in consumer thinking primarily based on the drop in home values," Jones said.

"In the past, homes could be counted upon for value appreciation and, therefore, a source for ready loans," he said. "No more, at least for the foreseeable future. Without that backstop, consumers have quit the trend of reckless spending we have seen for decades."

Key findings
So it would seem. The ABA's inaugural edition of its Credit Card Market Monitor found:

A virtuous cycle
Together, the findings paint the picture of a virtuous cycle: People are paying off their credit card debts faster than in the past and more people are no longer carrying over credit card debt from month to month to month. Not carrying debt means they're not suffering finance charges or dings to their credit scores -- which lets them continue paying off their debts faster.

The percentage of credit card users who pay off their full balances every month -- a group called "transactors" -- has been inching up almost from the start of the recession. Together, transactors and credit card holders with dormant accounts now account for nearly 60 percent of all U.S. credit card customers. That is another strong indication that the recession has left a lasting mark on, and produced a valuable lesson for, American credit card holders. On the surface, this seems like wonderful news, but there could be a hidden cost.

"Lower balances could indicate fewer discretionary purchases, which means lower economic activity, and the recovery from the recession is slower," Opperman said. "It's great if people are eschewing credit for day-to-day spending, but if they're not spending at all, our whole economic slump will continue ..."

"Whatever its effect on the larger economy, these trends are good for individual credit card holders," she said. "If consumer spending rebounds fully without increased credit card borrowing, then this will be a great turning point for American consumers."

See related: Fed: Card balances fell in July Fed maintains support for low interest rates