November 19th, 2010
3 Big Trends In Consumer Credit Right Now
Every month, Credit Karma releases a Credit Climate report that is a snapshot of how healthy Americans are with their credit and debt. It’s an interesting look at what is really in consumers’ credit reports. Are we drowning in debt, are consumers still credit-crunching, and is your credit score on par with the national average? Our data gives us a glimpse.
We sliced and diced the data into our most interesting, bite-sized chunks of what the credit climate was like in October. Here are the 3 trends in consumer credit right now that’s peaking our interest.
1) Consumers Are Shaving Off Some Credit Card Debt
Right before Black Friday and the 2010 holiday shopping sales erupt, consumers have been paying down their debt steadily into October. Since January this year, overall credit card debt dropped 7%, and was an average $7,382 in October. There are some star states, like Oregon, Nevada, and Hawaii, outperforming that pace, paying down balances by more than 10%. Wisconsin is the biggest winner, with credit-savvy consumers decreasing their credit card debt by 28%! We can all take a page out of our fellow Wisconsonians’ book.
2) Credit Scores Stay At A Spooky Average of 666
Hey consumers, we have work to do. Credit scores have not consistently improved this year, and dropped 3 points since January. In October, national average of credit scores remains a spooky 666.
With this credit score, consumers fit the fair credit score range and will likely get limited financial options and mediocre interest rates. If you fit this credit profile, remember that the difference in rates offered at this credit range could be the difference of thousands of dollars over the life of a loan, so don’t get too comfortable in this poor credit position.
But as consumers seem to be paying down credit card debt, which should help stabilize credit scores (scores have been stuck at 666 for the last 3 months) and, if slashing debt becomes a permanent trend, scores will begin to climb back up in 2011.
3) Who’s Paying Down Their Debts?
One the one hand, credit card debt, mortgage, and home equity debt has been decreasing from January to October. In addition to credit card debt’s 7% drop, mortgage debt fell 3% and home equity fell about 1%. On the other hand, auto loans and student debt has been climbing since the beginning of the year, with a 3% and 8% jump respectively.
This can mean several things. Credit card, mortgage, and home equity debt may be dropping because there are more charge-offs and delinquencies that issuers are writing off their balance sheets—not a good sign for consumers. Mortgages could also be falling because new mortgages are cheaper since home prices are declining. Auto loan debt may be increasing slightly because more and more consumers are buying last inventory of 2010 car models and becoming more comfortable with big purchases like cars. Student loans might be picking up because so many 20-somethings are hard pressed to find stable employment to pay back loans, or are going back to school and starting to pick up the tab for it.
In the face of these credit trends, credit could keep changing in 2011. Consumers typically binge-spend for the holidays, and it looks like by the way spending is picking up, that it’s going to be a healthy shopping season. In January, consumers start scaling back debt and tightening their financial belts, along with other long-overdue New Year’s resolutions.
Come back next month as we do another temperature check of America’s credit climate.
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thanks for the 3 big trend (: