Folks with average or better credit scores have been reaping the benefits of credit card use for some time. In case you haven't figured out, credit cards are a convenient way for consumers like you and me to make purchases without cash, to spread out payments over a period of months, and to collect rewards and cash back on credit card purchases.
These benefits have been less available to people with low credit scores, because many qualified for little to no credit as financial institutions cut off their access to credit facilities. For that reason, consumers with low credit scores haven't really been embracing credit card usage, but things appear to be changing.
The latest quarterly report from the New York Federal Reserve Bank shed light that total household debt rose to $12.3 trillion, up $35 billion thanks to an expansion of auto loans and credit card usage.
The auto loan component is no surprise, since these loans have been on an upward trajectory for the last six years. But the increase in credit card debt is new.
The aftermath of the Great Recession saw households cut back on credit card use, and that trend stayed in place through 2014. However, card balances have climbed $70 billion since then. In other words, folks are no longer thinking of credit as something negative.
Household debt is growing, but remains $400 billion below its 2008 peak, due to a $1.5 trillion decline from 2008 through 2013. The difficulty in obtaining credit experienced by low-credit-score households caused this group to reduce credit card ownership by 10 percent during this period.
The rebound in credit card use is occurring among so-called subprime consumers, those with credit scores below 660 (out of a maximum of 850). The group with scores ranging between 620 and 660 has seen their share of credit card ownership rise from 54.3 percent in 2013 to 58.8 percent in 2015. The group with scores below 620 saw credit card ownership climb to 50 percent from 45.6 percent over the last two years. These are the highest numbers since 2008.
The number of high-credit-score consumers with credit scores is 88 percent, this figure basically remained pretty much unchanged over the last decade.
When used responsibly, credit cards smooth out payments for consumption. However, overuse of high-interest-rate cards can cause debt to spiral uncontrollably. That occurred in the immediate aftermath of the Great Recession, but there is little evidence for current credit distress.
Delinquency rates continue to recede even as credit becomes more readily available. Currently, less than 1 percent of credit card balances are delinquent, or if you prefer, owed between 90 and 180 days.
Those in even worse shape number 6.2 percent, a historically low figure. The improvement in credit card delinquencies is mirrored in other debt markets, such as mortgages, where delinquencies are the lowest since 2007 and foreclosures are at an 18-year low.
Student loan delinquencies are countering the improving trend, remaining steady at around 11 percent.
And if you're looking to increase your credit score, check out these 5 tricks to up your credit score in 2 months.