Share

Our top picks of timely offers from our partners

More details
Petal® 2 "Cash Back, No Fees" Visa® Credit Card
Learn More
Terms Apply
Great for those with fair or average credit plus, no fees
Chase Sapphire Preferred®
Learn More
Terms Apply
60,000 bonus points – worth up to $750 in travel through Chase Ultimate Rewards®
American Express® Gold Card
Learn More
Terms Apply
60,000 point welcome offer - most points ever offered for this card
Blue Cash Preferred® Card
Learn More
Terms Apply
$250 welcome offer and save big on groceries at U.S. supermarkets
IdentityForce® UltraSecure+Credit and UltraSecure
Learn More
Terms Apply
CNBC Select may receive an affiliate commission when you click on the links for products from our partners. Click here to read our full advertiser disclosure.
Latest

Despite tough economic climate, credit card debt drops by 9% according to Experian

Even though 2020 was tough financially for many, the overall state of U.S. credit card usage improved. CNBC Select reviews Experian's data.

Share
Getty Images

This has been a year unlike any other, and so it's not entirely surprising that many Americans have changed the way they use credit cards.

Millions of Americans filed for unemployment in 2020, and millions more shifted from commuting to an office daily to working from home full-time as a result of the pandemic. Stay-at-home orders across the country means that people are dining out, shopping and traveling less. And as a result, many have seen significant changes to their daily spending. And these changes are having a positive impact on their credit usage.

Experian's latest data shows a record drop in credit card balances in 2020, after almost a decade of consistent growth. For eight consecutive years, consumer credit card debt (not just statement balances) grew to hit a record high of $829 million in 2019, right before the onset of the pandemic.

But in the past year, balances decreased by 9%: Total U.S. outstanding credit card debt is now around $756 billion, the lowest point since 2017.

At least part of this reduction in credit card debt might be attributed to relief from the CARES Act, including the suspension of student loan payments and the one-time $1,200 stimulus check. Though Congress continues to negotiate for further relief, these stimulus measures may have provided some Americans wiggle room to get a handle on their high-interest credit card debt.

People are still opening new credit card accounts

While people still opened new credit card accounts in 2020, it was at a much lower rate. Consumers in the U.S. opened 12 million new credit card accounts this year, Experian data found, compared to 21 million new credit accounts added in 2019.

In past years, growth in new accounts typically coincide with rising debt balances, the Experian report states. But this is the first time in the 14-year history of this analysis that the company has recorded a lower debt burden alongside an increase in accounts.

This implies that new accounts are being used to pay off debt (such as with 0% APR balance transfer cards) or that customers are using new cards responsibly while paying off old debt on cards they already have.

Stay on top of your new accounts: The FICO® Basic credit monitoring service monitors your Experian credit report and tracks changes in account status (including late payments), new card/account inquiries and balance changes of $1 or greater.

Consumers are charging less on their credit cards

Despite the tough economic conditions, many Americans have not been relying on credit to make ends meet. Consumers have seen their average credit card balance decrease by $879.

"The expectation that consumers would rely more heavily on revolving debt during an economic crisis is not far-fetched," writes Stefan Lembo-Stolba in Experian's blog post about the data. "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."

The $879 decrease in average credit card balance represents a 14% drop from 2019. Average individual credit card debt has not decreased year over year since 2011.

Lower credit card balances contributed to the lowest average credit utilization rate of we've seen in at least 10 years, at 25% (compared to 29% in 2019).

Delinquencies decreased despite the recession

There have been fewer late and missed payments for credit card accounts in 2020, too: The percentage of delinquent accounts across 30-, 60- and 90-days-past-due periods have all decreased.

It was the first time in five years that there hasn't been a year-over-year increase. The last time Experian reported a reduction in delinquency rates was 2014.

By making payments on-time, cardholders protect both their credit score and overall financial health. On-time payments is the most important factor considered in your credit score calculation. Not to mention that missing payments racks up expensive fees.

Never get a late fee: Check out our list of credit cards that don't charge fees for paying late. Favorites include the Citi Simplicity® Card - No Late Fees Ever, the Apple Card and the Petal® 2 "Cash Back, No Fees" Visa® Credit Card.

Bottom line

This year has certainly been a challenge for most American families, but a change in spending habits might not be a bad thing.

If you've benefited from a lower credit card balance and a better credit score, consider how you might continue to apply some of these new habits going forward. The pandemic has allowed many people to rethink their finances, and the end of the year is a good time to reflect on how you might apply these positive changes going forward into 2021 and beyond.

Information about the Citi Simplicity® Card and Apple Card has been collected independently by CNBC and has not been reviewed or provided by the issuers prior to publication.

Petal 2 Visa Credit Card issued by WebBank, Member FDIC.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the CNBC Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.