General Discussion

Consumers use credit cards for purposes of borrowing, as standby line of credit for unforeseen expenses and as a convenient payment device.  As a source of credit, credit card loans have substituted for borrowing that in years past might have taken place using other loan products, such as closed-end installment loans and personal lines of credit.  As a convenient payment device, a portion of the outstanding balances reflects primarily “convenience use”, that is, balances consumers intend to repay within the standard interest-rate grace period offered by card issuers.  In fact, consumer surveys, such as the Federal Reserve’s Survey of Consumer Finances, typically find that about half of card holders report they nearly always repay their outstanding balance in full before incurring interest each month.⁷

Although a relatively small group of card issuers hold most of the outstanding credit card balances, several thousand banking institutions and credit unions offer bank cards to consumers and are free to set their terms and conditions.  The U.S. general purpose bank credit card market is dominated by VISA and MasterCard labeled cards that combined accounted for an estimated 432 million cards in 2013, an increase of about 3 percent from 2013.⁸ In addition, American Express and Discover Card Services provided another 117 million general purpose cards to consumers in 2013, up nearly 3 percent from 2012. 

Bank cards are widely held by consumers and they use their cards extensively.⁹ According to the Federal Reserve’s Survey of Consumer Finances about 70 percent of families had one or more credit cards in 2010.¹⁰ The combined total number of charges and cash advances using these credit cards in 2013 reached 25.9 billion:  In total, these credit cards were used in transactions that involved almost $2.49 trillion dollars in 2013.

In the aggregate, the Federal Reserve’s G.19 Consumer Credit report indicates that consumers carried a total of $862 billion in outstanding balances on their revolving accounts as of the end of 2013, an amount about 2 percent higher than the level in 2012.¹¹ Although expanding some from 2012, outstanding balances under credit card plans remain notably lower now than when they reached their high point of $1.01 trillion in 2008.  The reduced borrowing reflects the lingering effects of the financial crisis that emerged in 2008 and the ensuing recession and muted recovery that have seen consumers repay balances and limit their credit card borrowing and card issuers tighten credit availability. 

Based on credit record data, it is estimated that in 2013 credit card borrowing accounted for about 6 percent of all outstanding household debt including mortgage debt.¹² The amount of available credit under outstanding credit card lines far exceeds the aggregate of balances owed on such accounts.  Credit record data indicate that as of the end of 2013 individuals were using less than one-quarter of the total dollar amount available on their lines under revolving credit card plans. 

In the recent economic downturn card issuers aggressively reviewed interest rates and credit limits and reduced limits on millions of accounts, particularly accounts that were inactive or little used by cardholders.¹³  Issuers responded aggressively to the difficult economic environment because inactive or little used accounts posed considerable potential risk of loss while offering little potential for profit, as cardholders may draw on these accounts when they encounter financial distress.  More recently, issuers have expanded credit access some by raising credit limits, although primarily for their best customers.¹⁴  Across the credit risk spectrum, credit card balances increased modestly (one to two percent) from 2012 to 2013 for credit card holders with scores above 620, but fell about 10 percent for those with lower credit scores. 

In soliciting new accounts and managing existing account relationships, issuers segment their cardholder bases along a number of dimensions including by risk characteristics, offering more attractive rates to customers who have good payment records while imposing relatively high rates on higher-risk or late-paying cardholders.  Card issuers also closely monitor payment behavior, charge volume and account profitability and adjust credit limits accordingly both to allow increased borrowing capacity as warranted and to limit credit risk.

Direct mail solicitations continue to be an important channel used for new account acquisition and account retention. After reaching an all-time high in 2006 of 7.0 billion direct mail solicitations, mailings fell sharply as the recent recession emerged.  Mail solicitations fell to only 1.5 billion in 2009.¹⁵  Industry data indicate that the retrenchment in mailings began to reverse starting in the third quarter of 2009 as prospects for economic recovery improved.  Industry data on mail solicitation activity indicate mailings rebounded to 4.2 billion in 2011.  The number of solicitations has been smaller since then, reaching 3.3 billion in 2013.