Credit Basics
Major Credit Bureau' Study Shows U.S. Consumers Relying On Credit Cards More Than Ever
Monday, March 26, 2007
Dave Burge
El Paso Times
According to Experian's latest National Score Index, compiled from a random sampling of 3 million consumers in the credit bureau's database, 51 percent of the U.S. population has at least two credit cards and 14 percent have 10 or more cards.
Also, 14 percent are using at least half of their available credit, according to the same study. The results "tend to suggest, on average, people in the last couple of years are accumulating more debt and are utilizing credit cards more than in the past," said Pete Bolin, manager of analytics for Experian.
The study also shows that consumers are using their credit cards as an "overall financial vehicle" rather than just an emergency tool, he said. Westsider Steve DuPlessis, co-owner of Office Xperts, said that at one time he had about $43,000 of credit-card debt, including $15,000 for his business.
"Over the course of two or three years, his family been able to whittle that down to less than $10,000, and they've cut up three cards as they've paid them off, he said. We've become responsible credit-card users over time," he said. Now, for his business, DuPlessis uses American Express, which requires him to pay off the balance each month. In his personal life, his family uses credit cards only during the holiday season. "It's pay as you go and for emergencies only," he said. If you get a credit card, wait until you're at least 25 years old, he advises. "You're more responsible as you get older," DuPlessis said.
Maureen Hankins, director of the El Paso YWCA's Consumer Credit Counseling Service, says the Experian study seems pretty accurate. "The people in our credit-counseling program average eight cards," Hankins said. The study also shows that people aren't saving, Hankins said. Saving is "what you have to do so you don't turn to your credit cards," she said. Most people only need "one good, major credit card," Hankins said.
Howard Dvorkin, founder of Consolidated Credit Counseling Services Inc., says the nation's materialistic outlook contributes to increased credit-card debt. "People have a ferocious appetite for items that they really can't afford," he wrote in an e-mail. "Many times they break down and charge it to satisfy their wants." If you find yourself deep in credit-card debt, vow to live on cash and stop incurring new credit-card debt, Dvorkin wrote.
Also, track your spending and make a budget to guide your future expenditures, he added.
Credit cards, however, can be a "very useful tool" if you use them responsibly, particularly if you pay off your balance in full each month, said Greg McBride, a senior financial analyst with Bankrate.com. "Purchases can accumulate rewards, such as cash back or airline miles, while giving you a few weeks of float time to use the card issuer's money," McBride notes.
The catch is you have to pay off your credit cards each month to make any rewards you earn worthwhile, experts say. Credit cards can also be used as an "emergency backstop" that can cover a temporary financial shortfall, McBride added. But make sure you pay off the balance as quickly as possible to avoid escalating interest charges, he said. Using credit cards in a disciplined fashion is the key, McBride said. "Don't use a credit card to purchase items you can't otherwise afford," he said. "Don't let balances linger. Don't let overspending lead to even higher balances down the road."
According to the Federal Reserve, U.S. credit-card debt totaled $876.2 billion as of December. "A lot of figures show that the consumer-debt burden continues to grow, and credit cards represent a lot of that additional debt," McBride said. "Credit-card debt represents a very high-cost debt for many households. Interest rates are in the double-digits with fees and punitive interest rates lurking should you slip up."
If you find yourself in credit-card debt, cut your expenses and/or boost your income by getting a second job or selling unneeded possessions, McBride said. Apply the additional money toward paying down your debt, he said. When you've paid off the credit card with the highest interest rate, turn your attention to the card with the second-highest rate, and so on, McBride said.
Make sure you pay more than the minimum, McBride said. "Paying the minimum is a treadmill to nowhere," he said.
Bolin, with Experian, says that to keep your credit history healthy, you need to pay your bills on time, try to keep your balance-to-credit-limit ratio as low as possible and apply for credit only when you need it.
Dave Burge may be reached at dburge@elpasotimes.com; 546-6126.
Where to get help
- www.bankrate.com. Click on the Financial Literacy icon on the home page and go to February's package, which deals with credit-card debt and includes articles, calculators and more.
- The El Paso YWCA's Consumer Credit Counseling Service offers debt-management services, credit counseling, housing counseling and personal-finance education classes. The service is also available in Las Cruces and Alamogordo. Information: 577-2530 in El Paso and (505) 532-1222 in New Mexico.
- www.annualcreditreport.com. Go to this Web site or call (877) 322-8228 to get your free credit reports. Under federal law, each U.S. consumer is entitled to one free credit report per year from each of the three major credit bureaus.
- www.consolidatedcredit.org. The site's Learning Center has a variety of personal-finance booklets that you can download, including "Budgeting 101" and "Credit Cards: What You Need to Know."
Credit-card use
Results from Experian's recent random sampling of 3 million consumers listed in its database, with national results followed by those from Texas.
- Average number of credit cards per consumer: four; 3.3 in Texas.
- Percent of U.S. population with at least two credit cards: 51 percent; 44.1 percent in Texas.
- Percent of U.S. population with 10 or more credit cards: 14 percent; 10.9 percent in Texas.
- Percent of U.S. population using at least half of their available credit: 14 percent; 12.9 percent in Texas.
- Average number of credit cards for those using at least half their available credit: 6.6; 6.1 in Texas.
- Average credit score for those using at least half their available credit: 645 (compared with the overall national average of 674); 625 in Texas.
Source: Experian.
