Record Number of Consumers Pay Off Credit Cards in Full
As the pandemic continues to affect the economy and spending patterns, more cardholders have been using their credit cards less. At the same time, they have been able to pay off more towards their debt, or pay their balances in full.
Credit card data from U.S. cardholders from April through June 2020, found that the share of cardholders who pay their monthly balance in full rose 0.6 percentage point to an all-time high of 32.2%. On the other hand, the share of those who carry over a monthly balance, fell 2.2 percentage points to 42.4%, the lowest level since the fourth quarter of 2015. Meanwhile, the share of dormant accounts increased 1.7 percentage points to 25.5%. The data comes from a study from the American Bankers Association.
Finance charges also saw a decrease during the same period. The effective finance charge yield (a measure of interest payments relative to overall card usage) dropped 40 basis points to 12.55 percent. This movement reflects the Fed’s decision to cut its benchmark rate, as well as the share of revolvers falling to its lowest level since late 2015.
“The share of those paying their monthly card balance in full rising to an all-time high is a positive indication that many consumers are better positioned to weather the economic downturn triggered by the pandemic than first expected,” said ABA Senior Economist Rob Strand.
Lower Credit Lines
The report also found that credit lines fell on a quarterly basis for both new and total accounts. This has also been reported previously, as banks were limiting their risk expsoure during the height of the pandemic. However, total credit lines remained above year-ago levels across risk tiers, including subprime (+1.8% year over year), prime (+0.1% year over year), and super-prime (+1.3% year over year) accounts.
The number of credit card accounts also fell on a year-over-year basis for the first time since 2012, driven by a 3.6% year-over-year reduction in subprime accounts and a 3.0% year-over-year decline in prime accounts.
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Terrible news for us 🙁