Understanding Credit & Debt
After a Recession: The State of America’s Credit Health
Experts Measure Financial Fitness and Credit Awareness
After the U.S. economy took a roller-coaster ride through recession in recent years, experts are evaluating whether that experience has changed the way American consumers approach their spending and borrowing.
"We're both a little better and a little worse, depending on what areas of debt and credit you're looking at," says Jonathan Roisman, content manager for NextAdvisor, a research firm that focuses on credit and finance topics. "Because the economy is stronger now, consumer confidence is growing," he says. "But on the other hand, it creates a condition where people may take on more debt."
By the Numbers
A 2014 study by Experian found that the average debt per person in the United States was $28,496, up 2.3 percent from a year earlier, according to Michele Raneri, vice president of analytics for the credit reporting company.
That figure includes both short-term debts (such as credit cards) and longer-term ones like student loans and mortgages. For credit cards only, the average American's debt is $7,200, says Roisman, down from the pre-recession level of about $8,500 in 2007.
Meanwhile, the 2015 Chase Slate Credit Survey found a disconnect between awareness of the need for credit and an understanding of how it works. According to the survey, 90 percent of Americans say they believe it's important to have access to credit, yet nearly 40 percent don't know their current credit score. More than half don't know that paying bills on time is the factor that has the highest impact on their credit score.
Of those surveyed, 37 percent said they were very confident that their current credit score can help them accomplish certain personal goals in their life, while many said they wish their credit scores were higher. Only 35 percent said they have a plan they feel confident will help to raise their scores.
Still, Raneri believes that Americans are showing more confidence about the economy and exercising more control over individual debt and credit.
"Consumers are becoming more engaged with their credit," says Raneri. "There's more general understanding of how consumer bill-paying habits contribute to their credit reports and, subsequently, the calculation of their credit scores."
In the Chase Slate Credit Survey, of those who have never checked their credit scores, 44 percent say it's because they did not have a reason to, while 27 percent say they do not have enough time and energy or it's too much effort to obtain the score.
Roisman adds that the recent recession led many Americans to cut back on spending and reconsider unnecessary purchases. But with a more robust economy, they're taking their wallets out again, and that should have a stimulating effect on the country. As interest rates for credit cards, vehicles and mortgages remain low, people are now more willing to take on debt, Roisman says.
Even with stronger spending and better understanding about credit scores, though, Americans need to be careful with financial management, or the next recession will cause the same amount of pain as the most recent one.
"It remains to be seen whether people will remember the recession enough to be more cautious with using credit and taking on debt," says Roisman. "Usually, as the economy gets better, people forget."
Raineri advises that people take a deliberate approach, since the "golden rules for credit management" never change: Pay your bills on time, don't max out your credit cards, spend less than you make, don't take on more debt than you can manage on a monthly basis and try to think long term when it comes to saving.
Americans have traditionally not been very good at saving, Roisman notes, but with better debt management, it's a good time to change that trend.
"If you're doing well now, protect yourself from the next downward slope, and put some money aside," he says. “There's always going to be a downturn somewhere in the future."
Illustration: Michael Austin | Elizabeth Millard is a freelance writer whose work has appeared in Entrepreneur, BusinessWeek and Delta Sky Magazine, among other publications.