January 9, 2009
Consumers seemingly shredded their credit cards in November, as consumer credit fell at an annual rate of 3.75 percent. The $7.94 billion drop in borrowing was a record.
Analysts say the report from the Federal Reserve shows that consumers either decided to cut spending on their own, or found their credit lines had been reduced. Either way, the result contributed to the large drop in retail sales that has helped through the economy into a tailspin.
The Fed also revised October's credit numbers, showing the credit spending slowed during the month, but not as much as previously reported.
The consumer credit categories included in the November report were closed-end loans for major purchases like cars, boats and college loans, as well as revolving credit, which include credit cards and charge accounts.
Throughout the fourth quarter there was growing evidence that banks were tightening credit accounts, while consumers were learning to live without credit cards. A December poll by Bankrate, Inc. found that 40 percent of consumers said they would not be upset if their credit lines disappeared. In fact, of the respondents who have credit cards, nearly one-third say they will probably charge less in 2009.
A much smaller group — only 5 percent — responded that they would be devastated with the loss of access to their credit cards. The poll is included in this month's segment of Bankrate's Financial Literacy Series: Fast track to becoming credit savvy.
