Credit Card Usage Rises By More Than 7% Due to Inflation

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What Happened: Experian recently released research on how inflation has affected credit card usage. It found that credit card usage was up by more than 7% year over year at the end of June 2022 in all but three states. The exceptions were Alaska, South Dakota, and Wyoming, where credit card usage rose by 6.6%, 6.6%, and 6.9%, respectively. These increases corresponded with the cost of living rising across the United States.

So What: Consumer purchasing power has declined significantly since 2021. The countrywide increase in credit card usage is a sign that Americans are borrowing more money to pay for their expenses.

What makes this especially problematic is that interest rates are also on the rise. While credit card interest rates went through a small dip at the end of 2021, they've increased throughout 2022. The average interest rate for credit cards issued by commercial banks was 16.65% in the second quarter. It rose to 18.43% in the third quarter of the year. Higher interest rates mean that "consumers could feel a heavier burden if they don't pay their full credit card balance each month," according to Dom DiFurio, staff writer at Stacker, per research from Experian.

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Now What: The cost of living has been hard on people's budgets, but borrowing more on your credit cards comes with serious risks. This raises your credit utilization ratio, which is your credit card balances divided by your credit limits. Your credit utilization is an important factor used to calculate your credit score. The lower your utilization is, the better. As a general rule, a credit utilization of 30% or higher negatively impacts your credit score.

Fortunately, there are several ways to keep credit utilization down, even if you need to spend more. You can:

  • Contact your credit card issuer to ask for a credit limit increase. If the card issuer raises your credit limit, this will lower your credit utilization.
  • Open a new credit card. This also increases your overall credit limit and lowers your utilization. Specifically, look at 0% intro APR credit cards, which let you avoid interest charges during an intro period.
  • Consider a debt consolidation loan. You can use this type of personal loan to pay off credit card debt.

To avoid larger financial issues, also look for ways to cut costs so you don't need to rely on your credit cards. Even if higher credit usage isn't affecting your credit score yet, credit card debt is still expensive. It could also keep growing until you adjust your budget and start a payment plan. Make paying off credit card debt a priority, both for your credit score and your overall financial health.

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