Personal loans remain a popular borrowing option as inflation and other economic changes put a squeeze on consumers with already-high credit card balances. Those who took on credit card debt to make it through the pandemic may be considering alternatives as continuing interest rate hikes result in both higher monthly minimum payments and greater monthly interest charges on existing balances.
Despite the potential to benefit from a fixed APR and monthly payment, however, there's a solid fraction of consumers who don't pursue the option of consolidating debts at a lower rate with a personal loan.
The Borrowing Choices of Consumers With Good Credit Scores
Nearly a quarter of U.S. consumers have a good credit score: In 2022, 23% of consumers had a FICO® Score☉ in the 670 to 739 range. Typically, a good FICO® Score means these consumers may be able to borrow at more competitive rates than those with lower scores.
Consumers with high credit card balances could save on interest, and potentially improve their credit scores in the process, by consolidating debt to a lower-interest fixed-rate personal loan. The average credit utilization rate for consumers with good credit scores ranges from 29.9% to 43.7%, which is high enough that consolidation could be beneficial and low enough that it's unlikely to affect approval odds for a personal loan. To compare, consumers with very good or excellent credit scores tend to have a much lower average credit utilization.
| Good Credit Score Borrowers Holding Credit Card and Personal Loan Debt | |
|---|---|
| No credit card or personal loan debt | 10.1% |
| Both credit card and personal loan debt | 34.4% |
| Personal loan debt only | 2.3% |
| Credit card debt only | 53.1% |
Source: Experian; data as of 2022. Note: Values don't add up to 100% due to rounding.
It's the majority—the 53% of credit card users with good credit scores—who are most intriguing here. On average, these borrowers have significant revolving credit card debt, although less than those managing both personal loans and credit card balances. Their debt is also lower than the small number with only a personal loan balance.
Typically, consumers with FICO® Scores in the good range are eligible for personal loans with APRs below that of standard APR rates offered by most credit card issuers. More notably, personal loans are almost always offered at a fixed rate, meaning the interest on existing loans won't increase as rates climb. This is a contrast to credit card interest rates, most of which fall—and rise—with the key federal funds rate set by the Federal Reserve. In 2022, that rate has been raised 3 percentage points through September.
The balances these credit card borrowers carry is lower than those with personal loans in their credit mix. More than half of consumers with good credit scores carry an average of $8,183 in credit card debt, but haven't used a personal loan to potentially save on interest.
| Good FICO® Score Borrowers: Average Credit Card and Personal Loan Balance | |
|---|---|
| No credit card or personal loan debt | N/A |
| Both credit card and personal loan debt | $12,418 |
| Personal loan debt only | $14,629 |
| Credit card debt only | $8,183 |
Source: Experian; data as of 2022
There are a few moving parts here that may explain the discrepancy in balances for some of the borrowers who only carry credit card debt.
- The credit card balance, though significant, will be paid down quickly. Credit cards offer convenience above nearly everything else, so family vacations and other large purchases can be easily purchased and paid off at a pace determined by the cardholder.
- Cardholders may be enjoying an introductory 0% APR offer. Credit card issuers sometimes offer introductory 0% APRs if you accept their card offer. Typically those with good credit scores will receive these offers.
- They may have recently transferred balances to a newer credit card offering a 0% APR balance transfer for the first few months. This can be a smart move—if the borrower doesn't add additional revolving debt to the balance in the interval.
If none of these explanations apply, then some of those 53% with credit card debt and a good credit score may be interested in refinancing their revolving debt with a fixed-rate personal loan, as credit card APR increases show no sign of slowing down before 2023.
Methodology: The analysis results provided are based on an Experian-created statistically relevant aggregate sampling of our consumer credit database that may include use of the FICO® Score 8 version. Different sampling parameters may generate different findings compared with other similar analysis. Analyzed credit data did not contain personal identification information. Metro areas group counties and cities into specific geographic areas for population censuses and compilations of related statistical data.
FICO® is a registered trademark of Fair Isaac Corporation in the U.S. and other countries.