Current Trends in the Credit Card Industry
The credit card industry is one of the barometers used to understand consumer spending patterns in the U.S. Given the impact that credit cards have on your consumer credit report, it’s important to understand the overall trends in terms of interest rates, and the increase or decrease of fees or adjustments to the cash back and rewards systems in place. These aspects affect whether you’ll be paying more or less when using a credit card as a reliable method of payment for goods and services. Certainly, wise usage of your credit card is likely to boost your credit score and is the most popular method for doing so, this type of debt can easily spiral out of the affordability zone due to increasing fees and interest rates. Here is a brief overview of consumer debt and the credit card industry for 2017.
U.S. credit card debt has now hit an all-time high of over 1.021 trillion dollars. We’ve not seen this level of debt since the market crash of 2007/2008. There are two primary factors that have encouraged the increase:
• Millennials and Gen Z’ers are, population-wise, a large consumer segment. The Gen Z elders are beginning their foray into the world of credit card debt. So the younger consumers help to expand the number of credit card users.
• Banks are providing greater access to credit cards. Essentially, they’ve lowered the barrier to entry and those with subprime credit or less than stellar credit scores are actively adding to the total revolving debt amount.
So far, in 2017, the Fed has increased short term interest rates twice. In turn, banks raised credit card interest rates which now hover between 13.56% and 18.66% for those with good to excellent credit. Another aspect that plays into credit card interest rates is the concept of supply and demand. By widening the access of credit cards to those with not so excellent credit, financial institutions have assisted in stimulating demand. As a result, the uptick in demand acts as a converging signal to raise interest rates, fees or both. Also, keep in mind that subprime credit card interest rates mathematically factor into the averages as they are generally higher (above 20%).
Cashback rewards and other perks, such as balance transfers are one of the primary ways that financial institutions incentivize consumers to open an account. Balance transfer periods, which often range from 6 to 18 months, are on the decrease. This means you’ll have less time to take advantage of 0% or other interest rate deals when you transfer your balance to the new account. Meanwhile, annual fees and foreign transaction fees have declined. Cash advance fees offset this and have shown to be on the increase.
Though U.S. consumers may have reached a new high when it comes to the amount of debt they carry, credit scores are also on the increase. Despite the various scoring models used by credit scoring agencies and financial institutions, the most recent average credit score calculation comes in at 695. Those 50 years older and above lead the pack when it comes to generational differences for credit score ratings. Gen X’ers, Millennials and Gen Z’ers are still working towards gaining a strong foothold on their finances.
One contributing aspect is the younger generations have been hit the hardest by the post 2007/2008 financial world. School loans, auto loans, and mortgages inhibit positive cash flow and the under 50 population tends to have these extra financial responsibilities in larger numbers when compared to the Boomers and Silent Generation.
Summarily, paying down balances or completely paying off your credit cards will save you money regardless of the interest rates. Keeping a few credit card accounts open should be balanced against the various fees or other costs. Using credit cards in an emergency or strategizing an increase in your credit score are smart ways to prevent credit card costs from dominating your financial health.