Credit card use, other borrowing grew again in August

The amount of credit card debt and other loan balances carried by Americans rose once again in August, driving consumer credit considerably higher.

Borrowers across the country owed more on both their credit cards and non-mortgage installment loans in the month of August, and consumer credit climbed 8 percent as a consequence, according to the latest statistical release from the Federal Reserve Board. That change was driven largely by a significant uptick in what the Fed refers to as non-revolving credit, which is defined as all installment loans not including mortgages. Typically, this borrowing category is made up primarily of student and auto loans, but has other types of borrowing, such as personal loans, included as well.

Behind the increase in non-revolving credit
This kind of borrowing has been on the rise for some time now, having jumped considerably between November and December, 2010, and growing steadily more or less ever since, the report said. In all, non-revolving credit increased 9 percent in August, a far larger rate of growth than the 1.5 percent observed in July, and more in line with both the increases seen in June (10.9 percent) and at the end of the second quarter overall (8.9 percent).

In all, consumers now owe more than $1.87 trillion on these balances alone, the report said. That's up from less than $1.86 trillion the month before, and slightly more than $1.78 trillion at the beginning of the year. In fact, at no time in the history of the Fed survey, which goes back to 1943, has the amount owed on this type of credit been as high as it is today. However, this has been the case for nearly all months since mid-2010.

Much of this increase, as it has so often been in the last year or more, was driven by consumers taking out student loans from the federal government, the report said. The amount of non-revolving debt owed to the U.S. by consumers rose to $495.7 billion in August, up from July's $471.8 billion. It is the highest level ever observed for this type of borrowing, and a massive increase from the less than $384.2 billion seen in the same month a year earlier.

Credit card borrowing spikes as well
Consumers relying on their credit cards to make purchases but then carrying larger balances at the end of the month also saw a significant increase, the report said. In fact, revolving credit rose for the first time in two months as a result of this new trend.

The amount consumers owed on their credit card balances rose 5.9 percent in August, up significantly from the lower levels observed in both June and July, when balances actually increased 4.6 percent and 6.7 percent respectively, the report said. At the end of August, consumers owed $854.9 billion on their various credit card accounts, up from July's 850.7 billion. Nonetheless, this increase did not bring balances to the levels seen in June, which stood at $855.5 billion.

Credit card balances have been holding more or less steady near their current levels for some time now, after rising appreciably during the recent economic downturn, the report said. Prior to that period, the last time balances were lower than their current levels was December 2005.

Borrowing affordability more of a mixed bag
When consumers turn to commercial banks to extend them credit, some likely found that their ability to afford the interest rates charged on these balances were lower in general, the report said. For instance, those seeking 24-month personal loans saw balances fall from an average 10.94 percent during the second quarter to just 10.39 percent now. Meanwhile, those for new car loans held steady at 4.88 percent, but that figure was down from the 5.07 percent observed at the end of the first three months of the year.

Meanwhile, credit card interest rates also saw mixed movement in the month of August, the report said. The average rates charged to all accounts slipped to 11.95 percent during the month, from 12.06 percent in the second quarter and 12.34 percent in the first. However, the rates faced by borrowers whose accounts were assessed interest in August rose to 13.22 percent, from the second quarter's 12.76 percent and the first's 13.04 percent.

If you're worried about the interest rates you might pay for any new line of credit, it might be a good idea to order a copy of your credit report before you apply. This might help you to identify any potentially unfair markings that may be marring your standing, and working with a credit repair law firm might help to clear up the issue.