Americans are doing a better job of paying off their credit cards -- even as they borrow more.
The American Bankers Association reported last week that the percentage of credit cards that had overdue payments of 30 days or more fell to an 11-year low in the second quarter. Meanwhile, the Federal Reserve said that consumer borrowing rose by $18.1 billion in August compared with July, including $4.2 billion from revolving credit lines such as credit cards.
Higher borrowing and fewer credit card delinquencies could be signs of a strengthening economy. But John Ulzheimer, president of consumer education at SmartCredit.com, says it's not time to celebrate just yet. There are several factors at play, and "not all of them paint a rosy picture," he says.
"Since 2010, credit card issuers have really focused on prime and super-prime credit card prospects," Ulzheimer says. "The result is a better-performing but lower-revenue cardholder base. The near prime and sub-prime borrowers still aren't getting decent credit card options and, as such, are staying away." That's good for banks, he adds, and probably better for those who haven't yet learned to manage credit.
Also, new financial regulations under the Credit Card Accountability, Responsibility, and Disclosure Act prevent unemployed people from getting a credit card. "So, you have to assume that many people who want to use a credit card cannot as a result of their employment status," Ulzheimer says.
Still, if you're one of the many cardholders who has worked to pay off your balances on time, it's time for a pat on the back.
And here's one last tip from Ulzheimer: Pay your balance before the statement close date rather than the actual due date. "If you can pay it off by the statement close date, the balance is never reported to the credit bureaus and your credit scores are never negatively impacted. If you cannot pay by the statement close date, the second most optimal method is to pay it off, in full, by the due date. This doesn't protect your credit scores from the balance but it does prevent you from paying interest."
Do you pay your credit cards in full every month?
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