Apparently, the average US household has US$16000 in credit card debt, with even college graduates having US$2000 by the time they graduate. In Canada, this figure is almost CA$27000. For comparison, it is much lower in the UK (£2,292) or Australia (AU$3400). Why do credit card issuers in the USA and Canada issue credit cards to people with such deep credit card debts?

Personally, my credit card limit is CA$1000, by securing CA$1250 for at least one year. Although I realise the security is because I'm new, it's very very far from even the average credit card debt in Canada.

Is my credit card issuer atypical, or have policies changed recently? Or is it just because I am a foreigner, and would they easily grant me with a 10x higher limit with no security, had I been a local?

Edit: I am interested in answers applying to the USA, Canada, or elsewhere, in case there are other countries with very high credit card debts.

  • Technical reasons: 1. As @littleadv suggests, multiple credit cards (~10K limit on each); 2. High compounding interest rate on the balance, which sustains/increases the balance over time if only minimum payments are made or occasionally missed; 3. Other types of charge cards for specific stores (although most are shifting to VISA/Mastercard platforms as those offer the same flexibility as bank-issued credit cards, hence are more attractive to customer). Also psychological reasons, esp. deceptive practices such as low min. payments designed to increase, rather than decrease the card balance. – A.S Mar 5 '15 at 16:19
  • $16k is mostly due to people defaulting. The figure was closer to $19k a few years ago: nerdwallet.com/blog/credit-card-data/… – Sun Mar 5 '15 at 16:26
  • -1 Is your actual question reflected in the title? Are you asking why US households have high debt amounts, or are you asking why you can't have a higher cumulative credit limit? – Sun Mar 5 '15 at 18:39
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    @sunk818 Yes, my actual question is reflected in the title. I am asking how US household have high credit card debts, as I am surprised that people who are in deep debt are able to get credit cards at all, as I thought people in deeb debts should be perceived as being in risk of default. I am not asking why I can not have a higher credit limit. I have never personally had an unsecured credit card, and I don't know how they work. A downvote means a question shows little research effort, is unclear, or not useful. Could you please let me know how I might improve my question? – gerrit Mar 5 '15 at 18:40
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    The article you cite (from two years ago) says "Canadian average credit card debt was down one per cent year-over-year at an average of $3,573." The $26,768 from the same paragraph is total debt load, and includes mortgages and lines of credit. – Zack Wolske Mar 7 '15 at 1:28

I'm not sure if the rules in Canada and the US are the same. I'm as amazed as you are by the amounts of debts people have, but I can see how this credit can be extended.

Generally, with good credit history and above average pay - it is not unheard of to get about $100K credit limit with a bunch of credit cards. What you do with that after that depends on your own ability to manage your finances and discipline.

Good credit history is defined by paying your credit cards on time with at least minimum payment amount (which is way lower than the actual statement amount).

Above average pay is $60K+.

So you can easily have tons of debt, yet be considered "low risk" with good credit history. And that's the most lucrative market for the credit card issuers - people who do not default, but also have debt and pay interest.

  • Aha. I didn't realise people could be in debt and still have a good credit history, as long as they make minimum payments. – gerrit Mar 5 '15 at 16:39
  • In US, it has more to do with your debt to credit ratio. If your credit limit is $100k and debt is $30k, you have 30% debt to credit ratio. That's quite high... but if you only had $7k in debt to $100k credit, 7% is ideal for credit score. – Sun Mar 5 '15 at 19:06
  • Made me want to check my own situation. I just checked 2 of my credit cards and between them I had over $60k in credit limits. I'd never use that much, but if you keep paying your bill in full each month they keep cranking it up to encourage you to get in a situation where you are paying more in finance charges. – JohnFx Mar 5 '15 at 21:16
  • I've had ~$100k in available credit the last time I added it up (which was quite some time ago.) I find it quite believable. – Loren Pechtel Mar 6 '15 at 3:35
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    The card companies consider their ability to make money for them by having you carry a balance and pay interest every month, against the risk that you'll finally overdo it. – JDługosz Apr 3 '16 at 6:18

I would say you are typical. The way people are able to build their available credit, then subsequently build their average balances is buy building their credit score. According to FICO your credit score is made up as follows:

  • payment history (35%)
  • amount owed (30%)
  • length of credit history (15%)
  • new credit (10%)
  • type of credit used (10%)

Given that you had no history, and only new credit you are pretty much lacking in all areas. What the typical person does, is get a card, pay on it for 6 months and assuming good history will either get an automatic bump; or, they can request a credit limit increase.

Credit score has nothing to do with wealth or income. So even if you had 100K in the bank you would likely still be facing the same issue. The bank that holds the money might make an exception.

It is very easy to see how a college student can build to 2000 or more. They start out with a $200 balance to a department store and in about 6 months they get a real CC with a 500 balance and one to a second department store. Given at least a decent payment history, that limit could easily increase above 2500 and there could be more then one card open.

Along the lines of what littleadv says, the companies even welcome some late payments. The fees are more lucrative and they can bump the interest rate. All is good as long as the payments are made.

Getting students and children involved with credit cards is a goal of the industry. They can obtain an emotional attachment that goes beyond good business reasoning.

  • Another point is that should you limit your credit use to 10-20% of your limit (a good idea for the utilization figure above), you might have $5000 credit limit, and seldom use more than $500-1000 of that limit, well within the spending limits for the average person in the U.S. or Canada. – ChuckCottrill Mar 6 '15 at 23:59

I had $70K in credit card at one point. Limited income, starting a business - it's the only credit available.

(yes, all paid off now).

  • Isn't the risk to issue a $70k credit card to someone with limited income... incredibly high? – gerrit Mar 5 '15 at 22:53
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    It wasn't a $70K credit card. It was probably 10 cards (can't really remember) and it was during the cheap credit bubble of a decade ago. I had over $150K in available credit on cards, maybe more. As long as made my payments... My business succeeded and it all got paid off. Alan Greenspan - I may be his only fan. – ssaltman Mar 5 '15 at 22:57

You must understand that not everyone has or can get credit cards.

Consider that those who are in the the lowest 20-30% of income tend to have fewer credit cards (or none), and lower credit debt, although some have quite high credit card debt relative to their income. So you really aren't comparing the same demographics (the population of all income earners, used to calculate average income, and the population of all credit card debt holders, are not the same groups of people). Once you remove those folks from consideration, then credit card usage may still average higher, but accept that it is unusual for people making less than $20K-30K/year to have much credit card debt.

You must understand that wealth and income are two very different (although related) concepts.

One must note that there are millions of people in the U.S. who have wealth; they have net assets of over $1M (excluding their homes). Many of those folks have assets greatly exceeding $1M. And although it might seem foolish to carry a large balance on their credit cards, they may have quite low interest rates, and simply find it simpler and more convenient to use credit cards in lieu of personal loans. Suppose you have $2M in net assets, and want to buy a classic car or a diamond necklace. Charging $30K and carrying the balance until a dividend check arrives may make sense.

Understand also that not everyone makes the same choices, or good choices.

Carrying a credit card balance may appear like a poor choice, especially when you are not wealthy, or have lower income. But suppose you have a high credit limit across several cards, and you need to handle a short-term financial challenge (car repair, layoff, medical bills, etc). You might use the credit card to pay for that purchase, essentially financing an extraordinary event over a longer period of time. And although having a balance of more than 5-10% of your monthly income may seem foolish to some, it may make sense to others.

And some people choose to carry balances of 50% to 100% of their credit limit. Others realize that keeping their credit utilization below 30%, 20%, or 10% of the credit limit is a better plan (both interest rate and risk wise).

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    Re "Charging $30K and carrying the balance...": Or even just charging $30K because you don't want to carry around a wad of cash, or write a check. While I've never charged $30K, it's not uncommon for me to make individual charges of $5K or more, just because a credit card is the most convenient way to pay. Of course I pay everything off before it incurs interest, but I think it still counts as credit card debt. – jamesqf Mar 7 '15 at 4:04
  • I don't know if a "line of credit" counts toward the credit card statistics that are cited. Even as a not-rich person, I hand a Visa card to the roofer, for example, and draw upon a home-equity line of credit. I think someone who affords the 30K dimonds would be using a secured card that happens to go through the Visa clearinghouse for ease of use but is actually backed by a "line of credit" not a "credit card". That's what you meant by low intetest. That is, I don't think those are counted on the statistics of credit card debt. – JDługosz Apr 3 '16 at 6:26
  • I know people who have credit cards with higher limits ($20-30k on a single card). I have known people who have had high credit limits across their cards and have had significant balances (one used $30k on $70k+ limit, another used $70k+ on $120k+ limit). Both felt they had justification, and have paid off their credit debt. – ChuckCottrill Apr 4 '16 at 0:08

In the United States, when applying for credit cards, proof of income is on an honor system. You can make $15k a year and write on your application that you make $150k a year. They don't check that value other than to have their computer systems figure out risk and you get a yes or no. It was traditionally easy to attain credit, but that got tightened in 2008/2009 with the housing crisis. This is starting to change again and credit is flowing much more easily.

  • Although credit cards may accept statement of income on the credit application, the application is a financial contract, and knowingly making false statements may be fraud (check with a lawyer). – ChuckCottrill Mar 10 '15 at 21:24

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