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Credit card use increases amid record inflation

There is no doubt that Americans are taking on more debt.

As prices rise everywhere, consumers are increasingly relying on credit cards to make ends meet.

The number of people with credit cards and personal loans hit record highs in the second quarter of 2022, according to TransUnion’s latest credit industry report released Thursday.

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The tally of the total number of credit cards alone topped 500 million for the first time ever, led by creatives among Gen Z, or young adults aged 18 to 25.

Overall, 233 million additional new credit accounts were opened in the second quarter, the most since 2008, according to a separate report from the Federal Reserve Bank of New York.

Credit card balances also jumped 13% during this period, recording the largest year-over-year increase in more than 20 years.

The best indicator of whether someone can pay their bills or not is whether they have a job.

Michele Raneri

Vice President of US Research and Consulting at TransUnion

Still, experts say the jump in usage isn’t a sign of trouble, just yet.

“I don’t see anything that I would really declare as a red flag,” according to Michele Raneri, vice president of US research and consulting at TransUnion.

“The unpaid increases”

Dan Brown Sword | Source of images | Getty Images

As the number of credit card accounts in the United States increases, more and more new customers are subprime borrowers, which generally means those with a credit score of 600 or less, according to TransUnion, in part because of the flood of young borrowers who have access to credit cards.

At the same time, “delinquencies are increasing and approaching what they were before the pandemic,” Raneri said. “But that doesn’t necessarily mean it’s bad,” she added.

As lenders expanded access, delinquencies rose but remained close to “normal” levels, according to the report. TransUnion defines a default as a payment that is 60 days or more late.

Employment is “the strongest indicator” of reimbursement

“The best indicator of whether someone can pay their bills or not is whether they have a job,” according to Raneri.

The July jobs report showed that the labor market remains strong despite other signs of economic weakness. The unemployment rate fell to its lowest level since 1969 and the average hourly wage rose 5.2% from a year ago.

“Consumers face several challenges that impact their finances daily, including high inflation and rising interest rates,” Raneri said. “These challenges, however, are occurring in a context where employment opportunities are still abundant and unemployment levels remain low.”

As long as “people have a job”, she added, “they can better understand everyday life”.

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