Credit Growth Slows but Consumers Still Turn to Cards for Spending Power

man holiday online shopping with credit card

Higher rates are proving to be headwind to borrowing, per the Federal Reserve’s latest stats.

But growth is still growth and consumers are still tapping traditional credit sources to augment their spending.

The Fed’s report on consumer credit, released late Thursday (Dec. 7) showed that total credit was $5.2 billion higher in October vs. the prior month, and that’s a significant slowdown from the $12.2 billion surge seen in September. The annual pace stands, now, at 1.2%, where that annualized rate had been 3% in September.

Digging into the details, revolving credit, which includes credit cards, slowed to a 2.7% rate, down markedly from the 4.1% growth rate in September. Non-revolving credit, which includes auto and student loans, rose at a 0.7% rate, ratcheting down from a 2.5% rate in the prior month.

Where Consumers Are Going for Their Cards

The data show that revolving credit held at depository institutions was up to $1.258 trillion, up from $1.254 trillion in September, while the amount held by non-financial businesses — typically retail cards — was $19.2 billion, up a bit from the $19.1 billion seen in September.

The numbers above show, then, that credit card debt increased right into the holiday shopping season, even as interest rates surged on accounts to 22.77%, up from roughly 17% right before the pandemic.

The revolving debt held with credit unions (CUs) saw a more than $1 billion boost in the latest data to $80.7 billion, from $79.5 billion in September. And the latest showing is up significantly from the $74.7 billion logged in the first quarter of this year. That increase at the CUs corroborates PYMNTS Intelligence data that notes increasing interest in using credit unions as the source for new credit cards.

Credit Unions and Community Banks Gain Credit Card Issuing Momentum,” a PYMNTS Intelligence and Elan Credit Card collaboration, revealed that 15% of overall consumers would most likely turn to credit unions for their next credit card application. As we found, this share went up to 19% in the segment of high-spending revolving credit users, consumers paying more than 40% of their expenses by credit card who usually carry a revolving balance between statements.

Moving to Other Sources?

The slowdown in card use may also herald a shift — at least a bit — on the part of consumers to use other credit sources as an adjunct (but not a replacement) for traditional cards.

Separate PYMNTS Intelligence data show some competition between buy now, pay later (BNPL) and credit card installment plans, as 41% of shoppers said they were planning to use those options, including those offered by BNPL providers and card companies, for their holiday purchases. The study found 72% of shoppers chose credit-card installments for non-grocery retail purchases while 64% opted for BNPL, giving a slight edge to the credit cards, which offer a range of rewards tied to loyalty that the BNPL conduits don’t.