Retail Credit Card Debt Grows Despite Flat to Slightly Rising Credit
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As consumers work to get their finances in order and save money wherever they can, more are opting for store-branded credit cards than bank cards.
Nationwide, new account openings for retail credit cards have rebounded from the recession—much more so than bankcards, according to new data from Equifax.
Both major retailers and consumers, who have the option to save money on their purchases if they open a card, are embracing store-branded credit cards. This trend indicates that consumers are getting their financial houses in order and are practicing discipline as they plan ahead and consider all of their spending options.
“We see the increase in retail credit card debt as an indication of rising consumer confidence,” said Trey Loughran, president of Equifax Personal Solutions. “At the same time, carrying over balances can lead to debt trouble fast, and consumers should be cautious about not overspending.”
While retail credit card debt is growing, debt on bankcards has remained flat or risen only slightly compared to 2012, according to Equifax’s latest National Consumer Credit Trends Report.
U.S. retail card debt grew more than 7 percent at the close of Q3 2013 compared to the same period in 2012, while bankcard debt was up by only 0.37 percent.
Across all but six of the top 25 metropolitan areas, bankcard balances were flat or declining in Q3 2013 compared to the same period last year. Retail card balances, on the other hand, were up in all of the top 25 metro areas.
New retail card accounts opened during the first seven months of the year are at 89 percent of 2007 pre-recession levels, with the number of new bankcard accounts at 59 percent of those levels.
The difference between retail card and bankcard originations is due in part to card issuer policies, but consumer behavior is likely also a leading factor. Shoppers are trying to get the best value from the businesses where they spend most of their money and are loyal customers.
“Consumers may be opting for retail credit cards because of the promotions, discounts and other perks they get at the register,” Loughran said.
“Other consumers are likely compartmentalizing their purchases—opening retail accounts to pay for larger purchases over time, and using their bankcards for everyday purchases like gas and groceries to be paid in full each month.”
Consumers may also be choosing retail cards over bankcards because these cards are available to all segments of borrowers, particularly those who experienced financial hardship during the recession.
“Retail card issuers are continuing to extend credit to near-prime borrowers, making store credit a viable option for consumers with lower scores who may have difficulty opening a bankcard,” Loughran said.
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