Consumers reduce debt on credit cards, report says

Consumers reduce debt on credit cards, report says

Making a dent in their credit card debt is one way consumers may be able to improve their credit scores.

A recent report by the Federal Reserve Board indicated growing efforts to do just that, with revolving credit falling at an annual rate of 13.1 percent in February. This more than reversed the 2.1 percent growth in January, and contributed to a drop in such credit from $867 billion to $858 billion during that time frame.

What may appear as good news to consumers, may also represent their struggle against insurmountable credit card debt. The Fed's report does not indicate the means by which revolving credit decreased in February. Paying off this debt is just one way it can drop over time. Charge-offs are another.

These write-offs are made on debts that are 180 days or more delinquent. At that point, many financial institutions will erase the loan from their books, while still holding consumers accountable for paying it off. Such actions can be severely damaging to one's credit score.

Nonrevolving credit decreased at a much slower rate in February. Debt tied to secure loans on boats, automobiles, college education and more fell by an annual rate of 1.6 percent that month, according to the report. This type of credit grew by 6.9 percent in January.

Combined, these shifts contributed to a 5.6 percent decrease in overall consumer credit at an annual rate.

Wells Fargo economic analyst Yasmine Kamaruddin commented on the report.

"I expect more declines, but smaller declines, as we progress throughout the recovery," she told CNNMoney.com. "We'll have to wait for employment prospects to improve and be sustained before consumers will feel confident enough to build up credit and purchase more."

The unemployment rate has remained stable at 9.7 percent during the past three months, despite some 162,000 jobs being added to the national payroll in March. Temporary hires for the 2010 Census accounted for much of this boost, according to a report by the Bureau of Labor Statistics, while the financial activities industry reported the greatest losses.

The long-term unemployed population also by 414,000 people in March. The longer these individuals are out of the workforce the more difficult it may be for them to remain current on their debt or maintain a strong credit score.

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