Credit Card Balances Still Declining

Americans are paying down their credit card debt at the fastest rates in years, so large issuers are spending more on marketing and loosening their standards for underwriting. Card balances at Discover Financial Services, Capital One Financial Corporation, and Synchrony Financial were down 9 percent, 17 percent, and 7 percent respectively in the first quarter from 2020.

“We are very focused on returning to growing loans,” said Roger Hochschild, Discover Chief Executive, according to the Wall Street Journal. “Delinquencies can’t get much lower than where they are now, but if your loans keep shrinking, your revenues come down [and] margins will get worse.”

Many consumers halted credit card use during the pandemic to avoid taking on new debt in an uncertain economy. Also, many consumers that would normally use credit cards on travel or restaurants did not have that option last year.

Credit reporting firm Equifax Inc. found that credit card balances on average equaled 18 percent of consumers’ spending limits, the lowest the firm has seen since 2009, compared to roughly 21 percent last year. In 2020, credit card spending totaled nearly $3.9 trillion on general-purpose and store cards, down 9 percent from 2019, according to the Nilson Report.

Card issuers found that while spending is increasing as the U.S. emerges from the pandemic, Americans are still paying down their balances. The total amount of credit card purchases in the first quarter at JPMorgan Chase increased 3 percent from 2020, but card balances fell 14 percent for the same quarter.

Additionally, card issuers are trying to recruit new customers with good credit scores. They mailed out nearly 260 million credit card solicitations in March. Discover said on its earnings call that it has “begun to migrate [its] credit standards back to pre-pandemic levels.”