After a tumultuous year with high inflation and high interest rates, the average credit card holder’s debt has ballooned.
According to a new report, the average American’s credit card balance has increased by 8.2% over the past year. Additionally, more than half of cardholders maintain a monthly balance, even as inflation continues to moderate.
Credit card debt increases every year
A new report from credit scoring firm VantageScore shows that as of December 2023, the average American credit card holder has a “significantly higher” balance than last year. The average balance has now reached $6,400, marking an increase of 8.2% (or about $500) compared to 12 months earlier. The company reports that nearly half of all borrowers maintain a monthly balance, despite APRs above 20%.
VantageScore also notes that the average credit utilization rate increased 0.7 percentage points to 31.7% over the same period. Credit utilization, which is calculated by dividing your total credit balance by the credit limit on all your cards, is a metric used by creditors when calculating your credit score. A rule of thumb says that the utilization rate should stay below 30%.
It may come as no surprise that people are increasingly relying on their credit cards. The Federal Reserve’s balancing of interest rates and inflation has pushed Americans to use additional credit to pay for daily expenses. And it’s not just credit cards that borrowers are struggling with: Debt from auto loans, mortgages and personal loans has also increased year over year.
The credit picture, however, is not entirely bleak. The average VantageScore credit score increased five points over the past year, improving to 701. At the end of last year, the average credit score even reached its highest level ever amid low levels of unemployment and clearing small medical debts from credit reports.
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