More than 8M stop using credit cards

Associated Press

NEW YORK

More than 8 million consumers stopped using credit cards over the past year. The decline stems from a combination of consumer choices and bank actions.

An analysis by credit- reporting agency Trans-Union found that use of general-purpose credit cards bearing MasterCard or Visa logos, or issued by Discover or American Express, fell more than 11 percent in the third quarter, compared with the July to September period last year.

About 62 million people now have an active card, compared with 70 million a year ago.

The Chicago company found that consumers in the subprime category, or those with low credit ratings, were believed to be without cards mostly because they were shut down by banks after payments fell behind or balances were written off.

“One can quite reasonably infer that’s not voluntary,” said Ezra Becker, vice president of research and consulting in TransUnion’s financial-services business unit. Banks have written off rec-ord amounts of credit-card balances in recent years.

But a significant portion of the decrease in card usage reflects decisions by cardholders to stop using credit, Becker said. “They’re simply either not purchasing as much or paying down balances.”

Many of these individuals may have shifted to using debit cards. In the past several years the use of debit cards has grown steadily and now surpasses credit-card use in both the number of transactions and dollar volume. Interest-rate increases by credit-card companies and reduced credit lines have contributed to that trend.

Still, that doesn’t mean consumers are shunning credit altogether. The average card balance stood at $4,964 in the quarter. That represented a slight increase from $4,951 at the end of the second quarter, and the first quarter-over-quarter increase in more than a year.

Yet it also reflects a 13 percent drop from $5,612 at the end of Sept. 2009.

Becker said the balance increase from the second quarter is mostly an indication that consumers are still under stress. Before the recession, he said, carrying a credit-card balance was more of a lifestyle decision reflecting spending choices. “Now it’s out of necessity,” he said.