Credit card borrowing falls by 6.8%

05.08.09
By Sarah Beldo

American families are still exercising caution when it comes to spending, while lenders continue to limit access to credit, new figures from the Federal Reserve suggest.

The latest data shows that all types of consumer borrowing fell by a record amount in March, dropping by 5.2 percent - or $11.1 billion.

This is the largest decrease recorded since December 1990, according to analysts. While some may see a positive trend of consumers paying off credit card debt and loans, others worry that a decline in consumer borrowing will place a further drag on economic recovery.

Revolving credit - which is mostly made up of credit card borrowing - dropped by 6.8 percent, or $5.4 billion, during the month, as consumers shied away from using plastic. Although a significant drop, it did not match February's record-breaking decrease of $9.7 billion.

Non-revolving credit - largely comprised of auto and student loans - fell by 4.2 percent to $1.6 trillion in March.

As experts look for signs of economic recovery, it seems that ordinary Americans are not so eager to go back to their old spending habits. Recent data from the Commerce Department supports this trend, revealing that consumer spending declined by 0.2 percent during March.

Meanwhile, the Federal Reserve's borrowing figures also reflect that many banks have tightened their lending criteria, making it more difficult for people to access credit. For example, many financial institutions say they are seeking higher credit scores than in the past for a new card account.

"The credit turmoil now appears at risk to wreak havoc with consumer credit for the rest of the year," Rick MacDonald, an analyst at Action Economics, told Reuters.

More Experts Articles | News Home | Discuss in our Forum

More consumers are shying away from using plastic.