According to a report generated by Liberty Street Economics that keeps track of credit usage, overall household debt has marginally increased in the 2nd quarter of 2016. Credit card debt and auto loan experienced growth while mortgage debt went down slightly.

The report reveals that credit card usage of buyers with a credit score of 620 or lower has gone up. Whether it’s a promising or bad news depends entirely on the mode of usage of these cards.

Prior to the credit crisis in 2007, approximately 60% of the subprime buyers were credit card holders. After the crisis hit, millions of accounts were closed by the subprime card issuers to those buyers off the book. At present, subprime consumers owning a credit card has decreased to 50%.

Savior in Emergency

Unquestionably, the importance of a credit card can’t be overlooked when an emergency crops up like an unanticipated house repair bill or emergency car repair bill. The absence of a credit card can force several subprime borrowers to opt for payday loans.

After analyzing credit card balances – the amount that remains unpaid on an account at the end of a billing cycle, the report found only 40% of the subprime cardholders maintain a balance of $1000 or lower while 14% have over $10,000 in their accounts.

According to the authors of the report, a consumer tends to take on more debt as his/her credit score improves. But when a consumer holds maximum credit scores, this tendency stops and instead, the debt balances start to fall.

Prior to the crash, the percentage of credit card holders reached 68% but it came crashing down to 59% subsequently. At present, it’s holding steady at around 61%.

The good news

In the recent years, both the prime and subprime buyers seem to be managing their growing use of credit cards in a better manner. It might be an effect of more credit concentration among consumers holding high credit score, but credit card delinquency has been experiencing a downward trend since 2008.

Good news is that the grassroot level consumers, who were paying down debt once and were compressed by the market pressure, are now rising again and opening new accounts. The obvious factors behind this changed scenario are tougher lending standards, a positive economic condition and a secure credit card market.