With the end of the coronavirus (COVID-19) pandemic in sight, a new survey suggests that about a third of consumers will resume running up big credit card bills. However, even more consumers won’t.
For 42 percent of the consumers in the Debt.com survey, the curbs they put on credit card purchases during the pandemic may be lasting. At least, that’s their stated intention.
The survey seems to suggest that many consumers learned valuable money lessons during 2020. In 2019, when Debt.com asked consumers how often they hit their credit card credit limit, 49 percent replied “never” or “rarely.” In the latest survey, conducted at the height of the pandemic, 57 percent gave that answer.
In fact, credit card usage is down despite the fact that so much retail activity has moved online. There was a 10 percent decrease in the number of people who said they used credit cards for shopping.
Credit card balances declined
The number of people carrying more than $20,000 in credit card debt increased, but only by 1 percent in the first quarter of this year. Overall, the money consumers owed on credit card balances fell last year, according to Experian.
It was the first time in seven years that any major consumer debt category went down. Experian called it “a surprising turn of events” given the broader economic environment brought on by the pandemic.
Before last year, consumer credit card debt had grown for eight straight years, hitting a record high of $829 billion in 2019. In 2020, balances plunged by 9 percent, bringing total U.S. outstanding credit card debt to $756 billion, the lowest point since 2017.
The Experian data dovetails with the Debt.com survey, showing that consumers have reduced their credit utilization and improved when it comes to on-time payments. The Debt.com survey shows the number of people opening new credit card accounts dropped by 1.5 percent last year.
"Opening new credit cards can drag down your credit score and it's a warning sign," said Debt.com President Don Silvestri. "In my experience, it's likely that a person has maxed out their other cards and is seeking more breathing room. Unfortunately, they rarely catch up. Instead, they get trapped with more debt."
Rod Griffin, senior director of consumer education and advocacy for Experian, says consumers tend to make better financial decisions when they understand the factors that influence credit standing.
He says that by reducing credit utilization and delinquencies, consumers have done the two most important things they can to improve their credit scores, which “should position them better to emerge strong from the pandemic."