A report issued last week by the Federal Reserve Bank of New York says that consumers are using credit cards more responsibly since the passage of the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 (Credit CARD Act), resulting in fewer delinquencies, lower revolving balances, a decrease in bankruptcy filings, and higher credit scores for many consumers.
This healthy credit picture may be in part because of the Credit CARD Act of 2009, which was staunchly opposed by the credit card industry, which felt it would compromise their revenue streams by forcing them to be more transparent about their terms. Instead, it seems that the legislation may have done what it was intended to do – help customers be better informed about their card agreements and make choices that better allow them to keep their accounts in good standing.
Total Credit Card Debt Down
In 2008, American credit card balances reached a peak of $866 billion. This year, the total was only $672 billion – a 22 percent decrease. The total number of open credit card accounts is down as well, with only 383 million credit card accounts open this year, down 23 percent from 2008, when there were about 496 million. General household debt only fell 0.5 percent during the second quarter of 2012, probably owing to the rise in student loan debt, even as credit card debt inched downward.
Along with lower credit card debt, there have been fewer bankruptcy filings. From the second quarter of 2011 to the second quarter of 2012, bankruptcy filings fell 15.7 percent.
The Credit CARD Act and Consumer Responsibility
“Customers are getting smarter about managing their credit card debt, keeping balances low and making payments on time. This might be partly owing to the new, easier-to-understand language on credit card statements, which shows customers exactly how long it will take to pay off their balances if they pay only the minimum due,” says Michael Germanovsky, editor-in-chief at Credit-Land.com. “Particularly with rewards credit cards that offer cash back and travel rewards, if people have revolving balances that rack up interest, they cancel out their rewards. More customers are realizing that it’s better to pay off balances in full each month because of the Credit CARD Act disclosures,” Germanovsky concludes.
Keeping Credit Scores Up
Along with better use of credit cards, credit scores have continued to rise each quarter this year, with more consumers nearing the 750-850 range, indicating good to excellent credit health. Credit card customers should keep the following guidelines in mind when they use their credit cards, in order to keep their scores high:
- Always make payments on time – payment history counts for 35 percent of a consumer’s credit score, so making sure those payments clear before the due date is a big part of a high credit score.
- Keep balances low – less than 10 percent of total available credit is ideal. The total amount owed, relative to a customer’s total available credit, counts for 30 percent of the credit score.
- Don’t close accounts – even if you no longer use one of your cards, maybe a card that you’ve paid off, don’t close the account. Length of credit history counts for 15 percent of a person’s total credit score.