Credit card debt is an ever-present worry for millions of Americans. The average cardholder carries around $6,000 in debt, enough to pay for a few months’ rent most anywhere in the country. But those everyday worries and spending habits soar to meteoric heights during the holiday season. In 2022, the average consumer spent more than a thousand dollars on holiday related purchases — about 70 percent of which was paid through credit cards. And with credit card debt now at an all-time high of more than $1 trillion across the country, festive spending is expected to once again burrow borrowers deeper into debt as we enter the new year.
Clay tablets to metal plates
The first recorded version of credit appeared on clay tablets in ancient Mesopotamia. The Archaeological Institute of America reports Mesopotamians chiseled letters, contracts, credits and debits onto the tablets to account for trade with other civilizations. Closer to our present use of credit cards are “Metal Money” and “Charga-Plates,” which circulated in the 20th century as lines of credit for consumers. They looked like miniature license plates and dog tags that shoppers would tote from store to store. Plastic cards first appeared in 1959, and they’ve stuck while incorporating magnetic strips, chips and tap technologies to record our spending.
Only one year
Any interest rate advertised by credit card companies to entice new customers is only effective for the first year the card is issued — or half that time if the rate is part of a promotion. After a year, most card issuers can alter the interest rate at any time, so long as card users receive a 45-day notice. And since many of the top banks that offer credit cards in the United States are federally chartered, they do not have to abide by state laws meant to limit interest rate swings.
30 days
That’s how long card users have to submit a late payment before suffering any consequences to their credit score. Creditors can only report a late payment to credit bureaus if that payment is 30 days past due, though other penalties like late fees may still apply. Complying with this grace period is especially important considering a late payment lingers on credit reports for up to seven years.
“There is a huge amount of evidence that suggests people are present-biased, they don’t fully weigh the future consequences of their actions. Borrowing is the most natural manifestation of our tendency as humans to prioritize short-term pleasure over long-run consequences.” —Neale Mahoney, professor of economics at Stanford University and research associate at the National Bureau of Economic Research
718
This is the average credit score in the United States. Credit scores quantify the trustworthiness of a borrower or the likelihood that they will repay debts on time. The higher the score, the more likely a bank or financial institution will extend credit to a borrower for a car, home, insurance or other long-term investment. A good credit score in the United States typically ranges from 670 to 739. Not all countries use credit scores, and some — like Japan, the Netherlands and Spain — measure credit through factors like income and employment history instead.
Direct to consumer
Retailers would directly issue credit to consumers until post-World War II, when dramatic economic growth prompted demand for a national credit. According to the Federal Trade Commission, whether or not credit was extended by the local store depended largely on personal relationships between shopper and seller. That changed in the 1950s, when financial institutions got in on the action, introducing credit cards that could be used nationwide. Now more than 80 percent of adults have at least one credit card.
70 million
That’s how many credit card accounts have been opened in the U.S. since pre-pandemic 2019. The widespread use of plastic to pay for goods points to why credit card debt is the most common form of household debt for Americans, who owe about $6,000 on average. A 2023 Bankrate report found that 47 percent of credit card holders struggle to pay off their monthly balance, instead they roll credit balances over from month to month, accruing interest and fees on the unpaid balance.
30% maximum
The most borrowers should charge their credit cards every month, regardless of their credit limit, is one-third of their available credit. Anything more will produce a “significantly negative impact on credit scores,” warns the credit bureau Experian. The percentage of credit an individual uses every month is called a credit utilization rate, and the average rate in 2022 was 28 percent in the United States.
This story appears in the January/February 2024 issue of Deseret Magazine. Learn more about how to subscribe.