Credit and Debit Card Use Continues To Increase

U.S. consumers, whose use of revolving debt fell by more than 15% once the Great Recession hit, are finally re-embracing the credit card.

The thaw in spending appears to be in its early stages, but the trend line is now clear: borrowing with plastic is picking up steam.

“Going forward, we are expecting faster balance growth,” says Mustafa Akcay, assistant director of consumer credit economics at Moody’s Analytics.

“U.S. consumers are becoming more comfortable in holding credit,” notes Scott Anderson, the chief economist at Bank of the West.

April data from the Federal Reserve Board showed that revolving consumer credit jumped at a 12.3% annual rate, after accounting for seasonal differences.

But even if that report overstated the magnitude of the rebound, as some observers suspect, other estimates also show that plastic-fueled debt is growing at rates unseen in several years.

Household credit on bank credit cards rose by 2.1% in May, which was the highest growth rate since the height of the financial crisis, according to a new report by Moody’s Analytics.

And analysts at Nomura recently declared that U.S. consumers’ propensity to carry credit card debt from month to month is at its highest level since October 2008.

“We now believe we’re at the early stages of a postcrisis inflection point in the level of spending that consumers are willing to finance on credit cards,” the Nomura report stated.

“Although we’re certainly not expecting consumers to go out and significantly re-lever their balance sheets, we do believe that consumer deleveraging is finally in the rearview mirror.”

The rebound is driven in part by a loosening of credit standards at card issuers, which clamped down on risky borrowers during the recession.

In the fourth quarter of 2013, 22% of loan originations went to borrowers with credit scores of below 660, according to data from Moody’s Analytics. That figure was up considerably from the postcrisis low of 12% in early 2010.

“Priced properly, a lot of money can be made on subprime,” says Robert Hammer, a credit card industry consultant. “But you’ve really got to be careful.”

Industry observers also point to improving consumer confidence as a key factor in the card market’s renewed loan growth. During the earlier stages of the economic recovery, many Americans bought cars, which they needed to travel to work, while delaying purchases of furniture, electronics and vacations.

“The big-ticket items are aging, and these are the items most likely to be financed by credit cards,” Akcay says. “The pent-up demand is very high.”

Some analysts maintain that the turnaround in revolving credit is still weaker than it ought to be. “It’s not happening quickly. It’s happening slowly,” says Moshe Orenbuch, a card industry analyst at Credit Suisse.

Orenbuch believes that some consumers who got rejected for credit cards when standards tightened have since sworn off plastic.