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After nearly a decade of consistent growth, overall credit card debt in the U.S. dropped in 2020. This marks the first time in seven years that any major consumer debt category decreased and is a surprising turn of events given the broader economic environment brought on by COVID-19.
Prior to 2020, consumer credit card debt grew for eight consecutive years, reaching a record high of $829 billion in 2019, according to Experian data. In the past year, this balance decreased by 9%, bringing total U.S. outstanding credit card debt to $756 billion, the lowest point since 2017.
Along with a drop in debt, consumers across the country have reduced their credit utilization and delinquencies across all late payment periods. These measures of individual financial success stand out against the difficult economic backdrop and raise the question about whether this trend will continue into 2021.
"Understanding the factors that influence your credit history is key to protecting financial health during the road to recovery from the pandemic and beyond," says Rod Griffin, senior director of consumer education and advocacy for Experian. "By lowering utilization and delinquencies, consumers have done the two most important things they can to improve their credit scores, which should position them better to emerge strong from the pandemic."
As part of our ongoing look at debt in the U.S., Experian reviewed historical credit and debt data from the third quarter (Q3) of 2020, specifically credit card debt, to understand how consumer conditions have changed in the past year. Throughout this analysis, we will compare the Q3 2020 snapshot to the annually representative data for 2019 and previous years. Read on for our insights and analysis.
Credit Card Debt Saw Unprecedented Drop in 2020
Since 2019, outstanding credit card debt has dropped by 9%, bringing the total for Q3 2020 to $756 billion, according to Experian data. This drop represents over $73 billion in balances that consumers have paid down in the past year—despite a recession.
|Overall Credit Card Debt in U.S.|
|Total credit card debt||$605B||$829B||$756B||-$73B (-9%)|
Aside from the fact this occurred during an economic recession, the decrease is notable because it marks the first drop in any type of debt since 2013. Until 2020, all debts—including mortgage, auto, personal loan, student loan and credit card—had been increasing year over year since 2014.
The expectation that consumers would rely more heavily on revolving debt during an economic crisis is not far-fetched. But reality shows that three-quarters of the way through 2020, U.S. credit card debt is at the lowest it's been for quite some time.
It's likely at least part of this drop in credit card debt can be attributed to consumers' access to cash and debt relief help from federal economic stimulus measures enacted by the Coronavirus Aid, Relief and Economic Security (CARES) Act. Provisions in the CARES Act, such as the suspension of student loan payments and a one-time stimulus check of up to $1,200, may have given consumers the wiggle room necessary to pay down their balances.
While balances may have dropped, the number of consumer credit card accounts has grown over the past year. Consumers in the U.S. opened 12 million new credit card accounts since 2019, according to Experian data. And while this is less than the 21 million accounts added in 2019, it's still significant given larger economic conditions.
Unlike in past years where balances grew in tandem with new accounts, 2020 is the first of at least 14 years (the oldest point in history included in this analysis) where consumers added new accounts but decreased their overall debt burden.
The past trend showed that new accounts typically brought increased debt. But in the case of 2020, the new accounts are either not being used to rack up high new balances, or consumers are aggressively paying down their debt enough to offset the balances being added to newly opened accounts.
|Overall Credit Card Accounts in U.S.|
|Number of credit card accounts||359M||485M||497M||+12M (+2.4%)|
Credit Card Balances Down by an Average 14%
Individuals in the U.S. have seen their average credit card balance decrease by $879 since 2019, according to Experian data. That represents a 14% drop and marks the first time since 2011 that average individual credit card debt shrank compared with the previous year.
With the onset of the COVID-19 pandemic, mandatory lockdowns and business closures have stunted consumer spending—which, along with other factors (such as the economic stimulus measures noted above), may have contributed to the decrease in credit card balances. Consumer expenditure, as measured by the U.S. Bureau of Economic Analysis, took a dive beginning in March, dropping to the lowest point in five years in April.
|Consumer Credit Card Snapshot|
|Avg. credit card balance||$5,329||$6,194||$5,315||-$879 (-14%)|
|Avg. credit card limit||$25,988||$31,371||$30,365||-$1,005 (-3%)|
|Avg. credit utilization ratio||27%||29%||25%||-4 percentage points (-12%)|
States With Highest Balances Saw Greatest Decrease
Across the country, consumers in all states saw average credit card balances decrease in 2020. In most states, consumer balances shrank at around the national average rate of 14%, but some stood out as having either a larger or smaller decrease.
Consumers in Washington, D.C., saw the largest average balance decrease, with credit card debt shrinking by 20% in the past year—6 percentage points more than the national average. The residents of the nation's capital saw their average balances drop over $1,400, from $7,077 in 2019 to $5,671 in Q3 2020.
On the other end of the spectrum, consumers in North Dakota saw their credit card balances shrink the least, dropping 8%. Their average balance started at $5,265 in 2019 and fell to $4,865 in Q3 2020.
|Average Credit Card Balances by State|
|State||Balance 2019||Balance 2020||Change|
|District of Columbia||$7,077||$5,671||-20%|
Credit Card Utilization at Lowest Level in Over a Decade
Driven by shrinking balances, consumers' average credit utilization ratio dropped to 25%—the lowest it's been in at least 10 years. Since 2019, the average credit utilization ratio for credit cards dropped by 4 percentage points from 29% to 25%, according to Experian data.
Credit utilization is the second most important factor in credit score calculations and is a measure of how much available credit a consumer is using on their credit card accounts at a given time. Those who can reduce their utilization could see higher credit scores—and thus typically better rates and terms when applying for credit.
|Average Credit Card Utilization in U.S.|
|Utilization ratio||27%||29%||25%||-4 percentage points|
Given that average credit limits shrank for many consumers this year, the fact that credit utilization is at a record low speaks to the transformative impact of paying down debt. Along with the decrease in credit utilization, the average U.S. consumer credit score also rose to a record high of 710 in Q3 2020. That's an increase of seven points since 2019.
While credit utilization is not the sole driver of the national average credit score change, it plays a large role. The connection between the two can be seen when looking at the scores of consumers in top credit ranges.
|Average Credit Utilization by Credit Range|
|FICO® Score☉ Credit Range||Average Credit Utilization Ratio|
Source: Experian data from Q3 2020
All Generations Reduce Balances
Though members of all generations have credit cards, each age group uses them differently. Members of younger generations (such as millennials and Generation Z) typically carry lower balances and have lower credit limits—and as a result, utilize more of their available balance. Older generations (such as the silent generation and baby boomers) are the opposite, carrying higher balances on cards with high credit limits—and have lower utilization.
Members of older generations decreased their debt at a higher rate than younger Americans in 2020. The silent generation, which includes Americans age 75 years and older, saw their average credit card debt decrease the most, shrinking 16% in 2020, according to Experian data. On the opposite end of the spectrum, Gen Z adults—Americans ages 18 to 23—only saw a 6% decrease during the same period.
|Change in Average Credit Card Debt by Generation|
|Generation Z (18-23)||$2,090||$1,963||-6%|
|Generation X (40-55)||$8,171||$7,155||-12%|
|Baby boomers (56-74)||$6,889||$6,043||-12%|
|Silent generation (75+)||$3,776||$3,177||-16%|
Though members of older generations cut a larger share of their credit card debt in 2020, the younger generations had greater reduction in credit utilization by paying down their balances. Members of Generation Z dropped their average utilization rate by 4.7 percentage points—three times as much as members of the silent generation. While older Americans have lower utilization overall, they also have much higher credit limits.
|Change in Average Credit Card Utilization by Generation|
|Generation Z (18-23)||36.6%||31.9%||-4.7 percentage points|
|Millennials (24-39)||35.6%||31.0%||-4.6 percentage points|
|Generation X (40-55)||34.8%||30.4%||-4.4 percentage points|
|Baby boomers (56-74)||23.6%||21.2%||-2.4 percentage points|
|Silent generation (75+)||13.4%||11.8%||-1.6 percentage points|
Younger generations also differed from their older counterparts in how their average credit limit changed over the past year. In 2020, millennials and members of Gen Z saw their average credit limit grow by 2% and 10%, respectively. The silent generation, baby boomers and members of Generation X all saw their average credit limits decrease in the past year.
|Change in Average Credit Card Limits by Generation|
|Generation Z (18-23)||$8,064||$8,870||+10%|
|Generation X (40-55)||$33,363||$33,049||-1%|
|Baby boomers (56-74)||$39,915||$38,679||-3%|
|Silent generation (75+)||$33,603||$31,489||-6%|
Despite Recession, Credit Card Delinquencies Decreased
As consumers actively paid down their credit card debt, late and missed payments for credit card accounts dropped in 2020, according to Experian data. Since 2019, the percentage of delinquent accounts—across 30-, 60- and 90-days-past-due periods—have all decreased.
The drop in credit card delinquency rates put a stop to five years of consecutive growth for late and missed payments. Before 2020, the last year to see any negative growth in delinquencies was 2014, which was the last in a five-year period of negative year-over-year decline in delinquencies as consumers emerged from the Great Recession.
The percentage of accounts that were 30 to 59 days past due (DPD) saw the most improvement, decreasing by 33% in 2020. Accounts 60 to 79 days past due followed, shrinking by nearly one-third since last year.
|Average Credit Card Delinquency in U.S.|
|% of accounts 30-59 DPD||0.83%||0.69%||0.47%||-33%|
|% of accounts 60-89 DPD||0.53%||0.41%||0.28%||-31%|
|% of accounts 90-180 DPD||1.34%||0.91%||0.69%||-24%|
Credit Trends in Changing Times
As the U.S. entered 2020, the economy was expanding rapidly and most measures of economic and consumer confidence were looking up. Several months into the year, the COVID-19 pandemic flipped this reality, plunging the economy into a recession and causing great concern among most Americans.
More than nine months into the pandemic, the economic impacts of the crisis are beginning to appear in consumer credit reports. Since credit reports are built from data reported by financial institutions, it can take months for larger macro economic trends to be translated into consumer-level insights.
Though initial debt data shows promising changes—like record low credit card debt, improved credit utilization, a record high FICO® Score and low delinquency rates—it's important to recognize that this data is a snapshot taken during a turbulent period. Additionally, changes occurred quickly and are subject to further change as time goes on.
This analysis looks at the most recent (upon date of publication) data from Q3 2020 and compares it with an annual snapshot for 2019 and other years cited. As time goes on, we will continue to monitor changes to consumer credit reports and will provide updates when notable change occurs.