The Credit Card Accountability, Responsibility, and Disclosure (CARD) Act, signed into law in May, will come into effect February 2010.

The White House says that the new law will end unfair and deceptive practices of credit card issuers and improve the disclosure of information to consumers. Presumably, this will benefit the majority of consumers. The assumption is that most people both use credit cards and carry balances on a regular basis.

The chart below shows the percentage of all American families that have at least one credit card and, separately, the percentage of all families that have a balance left over after they paid the most recent credit card bill. This data comes from the Survey of Consumer Finances, a tri-annual survey conducted by the Federal Reserve.

Source: Federal Reserve, Survey of Consumer Finances; latest data, 2007. (Click to enlarge.)
Note: general purpose credit cards include MasterCard, Visa, Optima, Discover, store cards and charge accounts, and gasoline company cards.

The chart shows that access to credit cards has been expanding over the past two decades. But credit card ownership is by no means universal. In 2007, 27 percent of families did not have any credit cards or charge cards—no Visa, no MasterCard, no store cards, nothing. Among the families with credit cards, the median number of cards was two, the same as it has been since 1989. (This means that half of families with credit cards have more than two cards, and half have two or fewer).

Furthermore, only a fraction of the families that have credit cards end up carrying a balance. For example, in 2007, 73 percent of families had a credit card. But only 58 percent had a balance after paying their most recent bill—either because they paid their bill in full or did not use credit cards, even if they had one.

The percentage of families that carry a balance on their credit cards has increased over time, but at a much slower pace than did access to credit cards. From 1989 to 2007, the percentage of families having a credit card grew almost three times as fast as the percentage of families carrying a balance.

The new law is designed primarily to help people who carry balances a lot of the time. It limits fees and interest rate increases. (People who pay off credit cards every month are not affected by the interest rate increases because they are not charged any interest.)

The Survey of Consumer Finances asks the respondents to report their bill paying habits. Perhaps surprisingly, these self-reported habits do not change much over time. From 1989 to 2007, among the families that have at least one credit card, the fraction of families reporting that they "almost always pay off the balance" fluctuated only slightly, between 53 and 56 percent. The fraction of families reporting that they "hardly ever pay off the balance" fluctuated between 24 and 28 percent. (The remaining families said that they "sometimes pay off the balance").

The numbers indicate that majority of the families in the U.S. are not persistently struggling with credit card debt.  Of the total number of families in the country, less than 20 percent hardly ever pay off their monthly credit card balances.

Nor is the median balance terribly high. In 2007, the median credit card balance among those families that carry a balance was $3,000. This means that among those families that carry a balance, half have balances larger than $3,000 and half have balances smaller than that, plus there is a large number of families who do not carry a balance or do not have credit cards at all.

Polina Vlasenko is also the author of the AIER publication How to Use Credit Wisely (2009).

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