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Credit Card Applications » News » Products » While Credit Card Debt is Dropping, So Are Credit Scores

While Credit Card Debt is Dropping, So Are Credit Scores

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All throughout the country, the average amount of credit card debt held by individual consumers has dropped 11%. This comes on the heels of the 10% drop that occurred in 2010. These figure are provided by the CreditKarma.com, a company which tracks and analyzes consumer credit card usage.

Ken Lin, the CEO of website CreditKarma.com predicts that consumer credit card debt will rise as we enter into the holiday shopping season.

“Consumers need to be aware of the correlation between debt and their credit score. Credit card utilization is a major factor in determining a person`s credit score, so carrying a large balance can cause it to decrease,” said Lin, according to Collections & Credit Risk.

It is typical for credit card debt to rise, on average, from the month of September through January. January is the month in which debt tends peak, as it is when shoppers are inundated by their holiday shopping bills. However, the decline year-to-year is indicative of consumer cautiousness regarding overspending.

Generally when there is a decline in credit card debt, credit scores rise as a result. What has been occurring the past couple of years is not in accordance with that trend, because even as consumers have been making the effort to keep their debts low, their credit scores are suffering nevertheless.

According to Lin, that is happening because of delayed recessionary effects like mortgage foreclosures, which take a long time to be processed through the system and which affect credit scores negatively.

“Similarly, even though unemployment peaked several quarters ago, unemployment insurance has been sustaining many of the people who would have defaulted. As a result of all these factors, credit scores tend to be a lagging indicator of the economy,” explained Lin to Collections & Credit Risk.

The national average consumer credit score fell from 666 points to 661during the time period beginning in October 2010 and ending in October 2011. To put that into perspective, the best credit scores are in the 740 to 850 range.

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