Credit card debt down

Let’s start on a cheerful note. Credit card debt–and debt levels generally–are falling. The October 2010 edition of the Federal Reserve Bank of New York’s Quarterly Report on Household Debt and Credit says that total consumer indebtedness is down. On September 30 this year, American consumers owed (gulp) $11.6 trillion.

Don’t panic*. That includes mortgages as well as all other forms of debt. It’s still very high, but it’s been much worse. That number is down $922 billion from its high in the third quarter of 2008.

Part of this drop is down to the decline in the number of open credit accounts. During the year ending September 30, 158 million new accounts were opened, while 217 million were closed. And the number of credit card accounts at that date was 378 million, down 24 percent from its 2008 peak.

Credit scores–a mystery unfolds

Now, this blogger has no illusions about his abilities as a statistician. They peaked during high school math, and that was a long time ago. But one of the Fed’s charts made little sense to this dunce. And that was the one concerning credit scores.

The graph showed the Equifax Risk ScoreSM Distribution from the first quarter of 1999 through the first quarter of this year. Across it were lines that portrayed each quartile, and another that showed the average. So how come those lines are all close to flat? And how come the average credit score in the first quarter of this year (roughly 690) was, if anything, slightly higher than at any time since 2000?

The Bureau of Labor Statistics says that in the second quarter of 2010 there were 14.6 million unemployed, of whom 46 percent had been out of work for 27 weeks or longer, and 31 percent had been jobless for more than a year. And it reports separately that, although 9.6 percent of the civilian labor force is technically “unemployed”, if you add in those who want work but have given up looking, and those who’ve been forced into mostly low-paid, part-time work because of the economy, that figure rises to 17.0 percent.

So if almost one in six working age Americans–and their families–are in such dire circumstances, why hasn’t the average credit score plummeted?

Credit card applications up, acceptances down

The number of people making credit card applications is rising again. To be precise, the Fed’s report doesn’t say exactly that, but it does say that the number of applications for all forms of credit has increased, and there seems little reason to assume that credit cards don’t make up their fair share of those.

The number of credit applications (when lenders accessed consumers’ credit reports) during the second and third quarters of this year totalled 160.8 million, while those during the first and second quarters came in at 149.7 million. However, through the whole of the year ending September 30 only 157.9 million new accounts were actually opened. And that’s the lowest number for any 12-month period since the Fed started counting these data back in 2000. A whole lot of people are having applications refused.

Credit report monitoring

Every time you make a credit card application, that should be noted on your credit report, and is likely to affect your credit score adversely. So it’s important not to apply for any sort of credit unless you stand a good chance of being approved.

One way to avoid damaging applications is to watch your credit report closely. Of course, you’re entitled to one free report each year, but it may pay you to subscribe to one of the services that allow you to monitor the situation constantly. These include:

• Equifax Credit Watch Gold with Score Power
• Smart Credit
• TransUnion – 3 Bureau Credit Monitoring

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* Actually, go ahead and panic if you want. $1.3 trillion of that $11.9 trillion is delinquent.

Published 11/15/10 (Modified 07/09/14)