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

Sept. 06, 2020
4 min read
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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.

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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.

(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.

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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 image by Muk Photo/Shutterstock

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  • Get 5X Membership Rewards® points on flights and prepaid hotels on amextravel.com, and 1X points for each dollar you spend on eligible purchases.
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TPG Exclusive Offer
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TPG Editor‘s Rating
Card Rating is based on the opinion of TPG‘s editors and is not influenced by the card issuer.
4 / 5
Go to review

Rewards Rate

5XGet 5X Membership Rewards® points on flights and prepaid hotels on amextravel.com
1.5XEarn 1.5X points on eligible purchases at US construction material & hardware suppliers, electronic goods retailers and software & cloud system providers, and shipping providers, as well as on purchases of $5,000 or more everywhere else, on up to $2 million of these purchases per calendar year
1X1X points for each dollar you spend on eligible purchases.
  • Intro Offer
    The Points Guy Exclusive Offer: Earn 150,000 Membership Rewards® points after you spend $15,000 on eligible purchases with the Business Platinum Card® within the first 3 months of Card Membership.

    Earn 150,000 points
    120,000 points
  • Annual Fee

    $695
  • Recommended Credit
    Credit ranges are a variation of FICO© Score 8, one of many types of credit scores lenders may use when considering your credit card application.

    670-850
    Good, Excellent

Why We Chose It

It's hard to find a card that competes with the mile-long list of benefits that come with the Amex Business Platinum. While it's certainly not the card for the average consumer, a business owner with tons of expenses -- especially related to travel -- will find this card incredibly valuable. This card is similar to the consumer version that Amex offers, but with more business-oriented perks around statement credits and earning rates that are a better fit for business owners.

Pros

  • An up to $100 credit for Global Entry or TSA PreCheck application fee every four to five years
  • Up to $400 annual credit for eligible U.S. Dell purchases (enrollment required)
  • Gold status at Marriott and Hilton hotels (enrollment required)
  • Access to the Fine Hotels & Resorts program and Hotel Collection
  • Extended warranty protection
  • International Airline Program and Cruise Privileges Program

Cons

  • Steep annual fee
  • Difficulty meeting $15,000 welcome offer for smaller businesses
  • Limited high-bonus categories outside of travel
  • The Points Guy Exclusive Offer: Earn 150,000 Membership Rewards® points after you spend $15,000 on eligible purchases with the Business Platinum Card® within the first 3 months of Card Membership.
  • Get 5X Membership Rewards® points on flights and prepaid hotels on amextravel.com, and 1X points for each dollar you spend on eligible purchases.
  • Earn 1.5X points (that’s an extra half point per dollar) on eligible purchases at US construction material & hardware suppliers, electronic goods retailers and software & cloud system providers, and shipping providers, as well as on purchases of $5,000 or more everywhere else, on up to $2 million of these purchases per calendar year.
  • Unlock over $1,000 in annual statement credits on a curation of business purchases, including select purchases made with Dell Technologies, Indeed, Adobe, and U.S. wireless service providers.
  • $200 Airline Fee Credit: Get up to $200 in statement credits per calendar year for checked baggage fees, lounge day passes, and more at one selected airline.
  • $189 CLEAR® Credit: Use your Card and get up to $189 back per year on your CLEAR® membership. CLEAR® is available at more than 50 U.S. airports and stadiums.
  • The American Express Global Lounge Collection® can provide an escape at the airport. With more than 1,400 airport lounges across 140 countries and counting, you have more lounge location options than any other credit card on the market as of 9/2021.
  • $695 Annual Fee.
  • Terms Apply.