Credit Card Usage Surges During Government Shutdown

Consumers sharply increased their credit card spending in October, adding $4.3 billion to their balances since September, according to the latest consumer credit data from the Federal Reserve. The 16-day partial government shutdown left thousands of federal employees without paychecks for much of the month, and consumers reached for credit cards to cover costs.

“The interesting thing about it is it was so dramatic,” said Samuel Rines, an economist and equity analyst for Chilton Capital Management in Texas. He was referencing the surge in revolving credit, which increased at an annual rate of 6.1% — up from a 0.3% decline the month before. (Revolving credit is reusable, like a credit card limit that is refreshed after payments and the end of billing cycles.) “Pretty much the only way you can explain it is instead of pulling back on consumption, like people thought, they just reached into their pockets and used plastic because they knew they were going to get paid.”

A high credit utilization rate (the amount of revolving debt you have compared to your available revolving credit) can have a major impact on your credit scores. The free Credit Report Card can show you your utilization rate, how it’s impacting your credit and how it compares to the national average.

During the shutdown, Congress passed legislation saying furloughed government employees would receive back wages after the shutdown ended, meaning those employees would eventually have the money to pay their credit card bills.

Given the political circumstances in October, it’s likely that growth will not have been sustained throughout November. Beyond that unusual spike, the report showed little significant changes. Nonrevolving credit declined in October, down from an annual growth rate of 9.1% in September to 7.5%.

“Again, you’re looking at government distortion,” Rines said. “There’s nothing to be concerned about there.”

Image: Duncan Smith