Americans return to credit spending, but are wary of carrying debt

Despite many banks pulling back lines of credit, a new report from the Federal Reserve found that consumer credit rose in May at an annual rate of 7.4 percent. This increase in activity pushed consumer credit to a record $3.195 trillion, with the bulk of that figure consisting of student and auto loans. 

Revolving credit, the majority of which is made up by credit card debt, has reached $870 billion. In 2008, that figure stood at $1.021 trillion, speaking to a rise in the trend of Americans being wary of carrying debt.

Before 2008, credit card spending was rampant in comparison, with the Federal Reserve releasing statistics that show credit card debt rising 87 percent in the 10 year period preceding the recession. It seems that these consumers learned a sharp lesson, as now that share of cardholders paying off their monthly balances in full has grown to 29 percent in the fourth quarter of 2013, the highest percentage on record. 

However, the increased use of plastic speaks to a rise in consumer confidence, as unemployment levels reach pre-recession lows, and banks are showing more willingness to extend credit. 

"Consumers have a greater capacity to meet their financial obligations due to an improving economy, low interest rates and the significant deleveraging they've done in recent years," American Bankers Association chief economist James Chessen told the Washington Post. "More and more consumers are using their credit cards as a payment vehicle, paying off or paying down their balances each month."

Some of this confidence comes as a result of the Credit Card Accountability, Responsibility and Disclosure (CARD) Act that was introduced in 2009. The CARD act required issuers to be more forthcoming about their pricing structures, helping consumers avoid some of the hidden fees and charges that frustrated them in the past. 

The rise in the use of credit reflects positively on both consumers' and banks' view of the economy. While issuing organization may have to make adjustments from the previous decades practices in order to accommodate borrowers paying off their balance in full, 

The importance of identifying credit risk through thorough analysis of credit attributes is critical in rebuilding consumer confidence within the credit industry. While the ABA's data shows that consumers are becoming more responsible with their use, lenders must still seek adequate protection during credit application processing

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