Latest financial study paints a rosy picture for consumer credit — but will it last?

Sep 6, 2020

This post contains references to products from one or more of our advertisers. We may receive compensation when you click on links to those products. Terms apply to the offers listed on this page. For an explanation of our Advertising Policy, visit this page.

At the height of the pandemic earlier this spring, unemployment and jobless claims soared. More than 33 million Americans claimed unemployment benefits by June 2020, according to the U.S. Department of Labor.

And to this day, millions of jobs remain at risk — including hundreds of thousands in the travel, aviation and hospitality sector.

Therefore, it would be understandable to expected that a recently released Consumer Financial Protection Bureau (CFPB) study would not dole out any good news when it came to the national overview of credit card debt, delinquencies and consumer credit.

For more credit card news and travel tips, sign up for our daily newsletter.

However, that actually wasn’t the case. In fact, the August 2020 CFPB report on the early effects of the pandemic showed nearly the opposite. So how could it be that while the U.S. economy shrank — and economic activity stalled — did we not also see credit card balances and debt skyrocket?

According to the CFBP study, among other factors, that was partially due to major government payment assistance, a sharp decrease in overall consumer spending and card issuers cutting credit limits.

The report looked overall at mortgage, student and auto loans and credit card accounts from March 2020 to June 2020 across the entire U.S., broken down further by socioeconomic groups.

In This Post

(Photo by Maskot/Getty Images)
(Photo by Maskot/Getty Images)

Delinquencies decrease

One of the biggest surprises is that delinquencies on major forms of credit did not increase during the early months of the COVID-19 pandemic, which is in contrast to the period of the U.S. Great Recession of 2007-2009. Federal, state and local assistance likely offset some of the income and employment losses that would typically lead to increased delinquencies.

Perhaps unsurprisingly, the report found that payment assistance was more concentrated among borrowers who lived in areas more severely affected by the COVID-19 pandemic.

Debt and balances also fall

(Photo by Feng Yu/Shutterstock)

Specific to the credit cards market, the CFPB suggests fewer account openings may have played an important role in limiting access to credit. Applications for new credit cards fell by about 40 percent at the start of the COVID-19 pandemic and remained low through at least May 2020.

Related: What should you consider before applying for credit cards right now? 

Therefore, with fewer new card accounts opened during this period, total credit limits were significantly lower than they might have been otherwise.

Financial institutions and card issuers also reduced access to debt by closing existing lines of credit and cutting credit limits. However, the CFPB notes that these effects are likely small in the grand scheme of things.

Instead of ballooning credit card balances, the opposite played out. Balances declined significantly between March and June 2020, reaching almost 10 percent lower by June 2020 compared to June 2019.

Consumer spending

(Photo by Kamil Macniak/Shutterstock)
(Photo by Kamil Macniak/Shutterstock)

One of the factors was just a lack of overall spending as consumers across the entire socioeconomic spectrum looked to save more money. In fact, the decrease in the average credit card balance holds true even when broken down by credit score, income, race and ethnicity, confirmed COVID-19 cases and unemployment changes.

However, the drop in balances was even more pronounced in areas having more employment, higher credit scores, higher income and living in an area with a higher COVID-19 case rate.

Related: How to recession-proof your credit score

Bottom line

With that said, it remains to be seen whether these rather rosy looking stats will continue in the months to come. With government assistance programs set to end, and spending coming out of the bottom it was at just a couple of months earlier, debt and delinquencies may begin to go back on the rise.

At TPG, we encourage paying off your bills in full each month and be responsible when it comes to your credit card spending. If you plan on opening a new card in the months to come, carefully evaluate your finances to ensure you’ll be able to pay your bills on time.

Featured photo by Muk Photo / Shutterstock.

Chase Sapphire Preferred® Card

WELCOME OFFER: 80,000 Points


CARD HIGHLIGHTS: 2X points on all travel and dining, points transferrable to over a dozen travel partners

*Bonus value is an estimated value calculated by TPG and not the card issuer. View our latest valuations here.

Apply Now
More Things to Know
  • Earn 80,000 bonus points after you spend $4,000 on purchases in the first 3 months from account opening. That's $1,000 when you redeem through Chase Ultimate Rewards®. Plus earn up to $50 in statement credits towards grocery store purchases within your first year of account opening.
  • Earn 2X points on dining including eligible delivery services, takeout and dining out and travel. Plus, earn 1 point per dollar spent on all other purchases.
  • Get 25% more value when you redeem for airfare, hotels, car rentals and cruises through Chase Ultimate Rewards®. For example, 80,000 points are worth $1,000 toward travel.
  • With Pay Yourself Back℠, your points are worth 25% more during the current offer when you redeem them for statement credits against existing purchases in select, rotating categories.
  • Get unlimited deliveries with a $0 delivery fee and reduced service fees on eligible orders over $12 for a minimum of one year with DashPass, DoorDash's subscription service. Activate by 12/31/21.
  • Count on Trip Cancellation/Interruption Insurance, Auto Rental Collision Damage Waiver, Lost Luggage Insurance and more.
  • Get up to $60 back on an eligible Peloton Digital or All-Access Membership through 12/31/2021, and get full access to their workout library through the Peloton app, including cardio, running, strength, yoga, and more. Take classes using a phone, tablet, or TV. No fitness equipment is required.
Regular APR
15.99%-22.99% Variable
Annual Fee
Balance Transfer Fee
Either $5 or 5% of the amount of each transfer, whichever is greater.
Recommended Credit

Editorial Disclaimer: Opinions expressed here are the author’s alone, not those of any bank, credit card issuer, airlines or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.

Disclaimer: The responses below are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser’s responsibility to ensure all posts and/or questions are answered.