Credit Card Usage Drops – Is Debit the New Credit?

Published

October 27, 2020

Credit.com contributor, Brian is an author who’s placed two finance/investment titles in "The Book of the Month Club" and he's a business writer whose byline has appeared in dozens of top-tier national publications, including The Wall Street Journal, CNBC, The Street.com, Yahoo Finance, CBS Marketwatch, and many more.

No doubt about it, the 2010 holiday shopping season was all boom and no bust.

That’s particularly true of online shoppers, who poured billions into retail coffers during the November-December shopping period. According to comScore, U.S. consumers spent $32.6 billion during the holiday shopping season, a 12% hike over 2009, an “all-time record for the season.”

But there’s a funny thing about all those online shoppers – more and more of them used debit cards for their purchases, and less and less of them used credit cards. The National Retail Federation estimates that 43% of all holiday shopping purchases used debit cards, while less than 28% of consumers relied on credit cards for their shopping needs – that’s the lowest amount since 2002.

Is the dip in credit card use over the holidays a trend? Or is it an aberration?

A closer look at the numbers reveals that Americans en masse are shying away from credit cards. Credit bureau giant TransUnion reports that eight million U.S. consumers have stopped using traditional credit cards – possibly for good.

TransUnion offers an interesting take on the matter. Company analysts say that a good chunk of those eight million “drop outs” are high-risk card carriers who couldn’t afford to keep using the cards (in many cases, they were cut off by card issuers). In addition, “low risk” card customers are tightening their belts, and credit card use is the first belt hole to go. Based on TransUnion’s data, all credit card consumers are cutting back – and that suggests more of a long-term trend than a short-term budgeting decision.

Says the report; “Based upon income levels estimated by TransUnion’s income estimation model, consumers with higher incomes were just as likely as consumers with lower incomes to suspend their use of this payment option.”

All told, 78 million U.S. consumers do not currently use a credit card, which includes the eight million counted by TransUnion. That’s a number that is bound to keep card issuers and banks up all night, wondering how they can lure those customers back.

The hard answer for card companies? Those consumers may never be coming back.