Maybe consumers are feeling better about the economy. Or could it be that we are once again starting to rely on our credit cards a little too much? Some recently released figures make an argument for both sides of this debate.
The Federal Reserve Bank of New York released its latest Quarterly Report on Household Debt and Credit recently. It showed the number of open credit card accounts rose by 3 million, to 386 million, during the fourth quarter of last year.
Credit account inquiries within six months, an indicator of consumer credit demand, increased 2.7% for the third quarter in a row.
The report also found that credit card limits rose by $98 billion, or 3.6%, in the fourth quarter of last year, resuming the trend of increases observed in the first half of the year. This may indicate that banks are willing to take more of a financial risk with their cardholders.
The last two monthly G19 reports from the Federal Reserve show that consumers used their credit cards quite extensively to fund their holiday shopping. Revolving credit, which is made up primarily of credit card debt, increased at an annual rate of 4.1% in December. It rose nearly $3 billion, to $801 billion. This follows a jump of $5.5 billion in November, an annual rate increase of 8.4%. December was the fourth straight month of increases in revolving credit.
Consumer spending is one sign of a healthy economy. Consumers can’t afford to fall into the trap of spending more than they can afford, though, especially on their credit cards. If cardholders carry a balance on their credit cards, the high APRs issuers are now charging will destroy them financially. If consumers can’t pay off their entire balance on time every month, they will start to fall into the trap that helped lead to so many troubles during the recent economic recession.
By Bill Hardekopf