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Credit card ownership sees 1st jump since 2008

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The number of credit cards held by consumers increased for the first time since early 2008, according to data released by the Federal Reserve on Monday.

The rise, fall (and slight rise)
of credit card ownership
Credit cards have seen the most dramatic rise and fall of any type of loan. After skyrocketing near the start of the century, credit card accounts fell just as spectacularly when the recession hit. Only in the past  three months did credit card ownership rise again.

To find the total number of credit cards, use the graph's right axis. For all other loans, refer to the left axis.

The Federal Reserve Bank of New York's latest report on household debt and credit showed the number of open credit card accounts ended a long period of decline in the fourth quarter of 2010. During that period, the number of open credit card accounts rose to 380 million -- up slightly from 378 million in the prior quarter, but still well below pre-recession totals. But even as credit card ownership increases, the survey indicates that consumers remain cautious about taking on new loans of all types, as they focus on reducing debt levels and geting current on unpaid loans.

"Things are improving, but it's not going to improve from one day to the other. It's going to take some time," says Gregory Daco, senior economist with IHS Global Insight in Lexington, Mass.     

Other experts agree that despite the recent increase, it's too soon to say the number of credit cards owned has reached a bottom. "But these numbers are so low by historical levels that it seems like they have nowhere to go but up," says Susan Menke, behavioral economist for Mintel Comperemedia, which tracks direct marketing offers. 

Inside the survey
To assemble its quarterly report, the New York Fed surveys the credit reports of a nationally representative sample of U.S. consumers. According to the New York Fed, its resulting database includes approximately 40 million individuals in each quarter. Some of the highlights include:  

  • The number of open credit card accounts at the end of 2010, though up from the third quarter, was still down 23 percent from a peak in the second quarter of 2008.
  • Credit card balances accounted for 6 percent of total consumer debt in the fourth quarter of 2010, unchanged from the third quarter.
  • Credit cardholders were using 27 percent of their credit lines (balance-to-limit or utilization ratio) in the fourth quarter, compared to 26 percent in the third quarter.
  • Total consumer indebtedness fell to $11.4 trillion in the fourth quarter, down nearly 9 percent from its peak level at the end of the third quarter of 2008.
  • About 211 million credit accounts -- made up of various loan types -- were closed during 2010, while 164 million accounts were opened.
  • The number of credit account inquiries (credit checks by banks) for various loan types within six months rose to 163.38 million in the fourth quarter from 160.75 million in the third quarter.  

In the wake of the economic recession, borrowers took on less new debt, paid off existing loans and had unpaid accounts charged off by their banks. Although consumers have fewer credit cards today than before the recession hit, the survey appears to show that consumers are slowly beginning to seek new credit once again. That's likely due to a slowly improving economy, experts say, which is giving consumers confidence that if they borrow money now, they will have the jobs -- and paychecks -- needed to repay their debt in the future.     

Still, experts say the effects of the economic downturn continue to be felt. "There is a change in mentality where consumers are more careful and take on less debt and pay more debt off," says IHS's Daco.  

Consumers getting their houses in order
Consumers' ongoing efforts to clean up their personal finances were evident elsewhere in the New York Fed's report. Overall consumer debt fell further in the fourth quarter, with aggregate debt -- which includes home equity lines of credit, mortgage, auto loan, student loan and credit cards -- down 8.6 percent from its peak of $12.5 trillion in late September 2008. Borrowers also worked to get current on their unpaid loans: Total household delinquency rates declined for the fourth straight quarter, while fewer foreclosures and bankruptcies were added to credit reports during the October-to-December 2010 period.

With more credit cards in use, something else is finally on the rise, as well, according to another Federal Reserve study: credit card debt. Total credit card balances, which had been falling consistently since the recession began have also reversed itself and started to rise, according to year-end 2010 consumer debt figures. The Fed's most recent G.19 consumer credit report indicated that revolving debt -- mostly made up of credit card balances -- rose 3.5 percent in December to $800.5 billion. The latest data shows credit card debt accounted for 6 percent of total consumer debt in the fourth quarter.

Analysts say it's too soon to know whether that increase in card use was a result of holiday spending or the start of a more renewed love of plastic. Other experts say consumers are warming to credit once more. "I think people are cautiously starting to spend again, but still focusing on paying off debt (particularly certain age groups such as the young baby boomers)." Menke says in an e-mail.

"We're in the early stages of a convalescence in terms of credit, but consumers are not fully healed. It's still a long process," says Daco. 

See related: Credit card debt rises, reversing long slide

Published: February 14, 2011


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