The media has a tendency to exaggerate when covering monetary matters. In 2010, for instance, CBS News aired a shocking exposé on the level of personal debt in the United States.
The story aptly titled Addicted to Debt, described the precarious financial situation of the average American family. The article revealed, for example, that $775 billion was the entire amount of credit card debt held by Americans.
Experts have blamed an unbelievable trend for the impending disaster in the United States economy caused by credit card debt, which they attribute to consumers’ propensity for impulsive purchases.
That unbelievable trend has long since faded away. In fact, the total amount of consumer debt carried by Americans had been declining for more than a year prior to CBS airing its documentary on America’s apparent debt addiction, and the amount of credit card debt owing by Americans has decreased from its high in 2008.
The Federal Reserve Bank reports that after hitting a high of $1.05 trillion in 2008, the overall amount of revolving debt has dropped by nearly 16%. At the present, Americans owe about $845 billion in revolving debts, and the amount charged each month decreases.
These days, credit card decline has become a hot topic in the mainstream press. Reuters, using the same data from the Federal Reserve, reports that Americans are eliminating their credit card debt at a record rate.
But how dramatically is this worldwide credit card decline? You would believe Americans are the only people who use their credit cards with abandon whenever they get the chance after reading news accounts of the country’s debt crisis. Of course, the truth is very different.
Use of Credit Cards in Other Countries
In the UK, credit cards
Do you know that Experian is based in a country other than the USA? GUS plc, headquartered in Dublin, Ireland, acquired Experian from its American owners back in 1996. Bain Capital, then led by a relatively unknown business tycoon by the name of Mitt Romney, is the current owner of Experian.
The company was acquired by GUS for an undisclosed fee, and it was later merged with another UK acquisition, CCN Systems. Through their merger, the modern credit-scoring and monitoring powerhouse known as Experian was born.
With offices in Dublin and CCN Systems’ birthplace of Nottingham, Experian continues to be an integral part of the credit reporting landscape in both the United States and Britain. In fact, Robin Hood’s hometown is home to the credit bureau that keeps tabs on your financial history.
Given Experian’s continued prominence in the credit industries of both the United Kingdom and the United States, it is not surprising that these two countries systems for reporting credit information, evaluating creditworthiness, and making credit decisions are strikingly similar to one another.
Therefore, the procedures for applying for a credit card, the methods by which issuers arrive at credit decisions, and the methods by which issuers set credit limits and interest rates are all equivalent between the two sides of the Atlantic.
However, research by the British insurance business Aviva Family Finance, as published by the Guardian, found that family credit card and personal debt in the UK climbed by 48% in 2011.
This is not to say that Americans and Brits use credit cards in the same way. The Bureau of Economic Analysis found that while Americans were saving more, people in the United Kingdom were doing the opposite.
The Credit Cards in Scandinavia
The Scandinavian economy is lauded for its discipline and thrift, but it is also condemned for its high tax rates and extensive government involvement in the market. All aspects of the economies of the Scandinavian countries (Norway, Sweden, Finland, and Denmark) are highly regulated, and the financial sector is no exception.
As a result, the maximum amount of credit available to any given individual is lower than in other countries, and credit cards are typically issued only to those who already have an account at the issuing bank and can prove their income.
The Swedish and Finnish-based Nordea Bank is one of the leading banks in Scandinavia and issues a variety of Visa and Mastercard credit cards with no interest in a customer’s Experian credit score.
Instead, it uses a credit bureau to discover if the customer has ever missed payments on any loans or credit cards. For instance, banks can inquire about the payment history of Finns by contacting Asiakastieto, which maintains credit information for Finns.
An individual can only be issued a credit card that does not exceed the maximum amount permitted by law if they have never failed on a loan before and do not have an excessive amount of debt this varies from country to country.
A modest ceiling on how much debt a person can incur – and how much debt they can default on – is set by linking the total debt a person can qualify for to a person’s income.
The Credit Cards in South Korea and Japan
The fact that some other countries have higher credit card debt per capita may come as a shock to many Americans. One such country is the Republic of Korea. Reuters reported in 2011 that South Koreans have a higher average credit card debt than Americans did just before the 2008 subprime mortgage crisis.
While the United States works to reduce its debt, South Korea is increasing its credit card fees. Koreans have experienced debt problems previously, in the late 1990s and early 2000s, but their current credit card debt is higher as a percentage of their income than it was then.
The Bank of Korea reports that personal debt is at 136% of disposable income, which is similar to the level Americans were at right before the subprime mortgage crisis hit the United States.
Korean banks offer credit cards in much the same way as American banks do, with the exception that Korean banks employ more manpower to verify that applicants actually work where they claim to work, typically by requesting evidence of income.
Credit cards in Japan are distributed in a manner similar to that used in the United States; however, banks conduct more in-depth risk assessments of individual applicants by contacting their prospective customers’ places of employment to verify the information provided on the application.
Similarly, in both nations, the maximum credit card limit issued by a bank is usually equal to one month’s salary. This is done to reduce the bank’s exposure to potential losses.
Credit card debt in these nations is also often settled in one of three ways:
- A full month’s payment is required. When making a purchase from either country, this is the default. Whenever a transaction is made with a credit card, the entire purchase price is reflected on the following month’s credit card statement and must be paid in full by the cardholder.
- Multiple Payments Spread Out Over the Course of a Year. Credit card users in South Korea and Japan have the option of requesting a repayment period of anywhere from two to twelve months when making a purchase. This information is entered by the cashier at the time of purchase, but only if you specifically request it.
- Circular Debt. Like American payments, there is a minimum monthly payment that cardholders must meet, however they are free to pay more if they so choose.
The use of revolving credit is forbidden in Japan in particular, which makes it difficult to secure in both nations. As the economy and standard of living in South Korea have improved over the past 15 years, so too has the level of revolving debt held by its citizens.
The Credit Cards in China
When Citigroup announced in 2012 that it will begin issuing credit cards in China, it created history as the first Western bank to do so. China has come under increasing pressure from foreign banks to open up its consumer loan market as the country’s economy has expanded and the demand for consumer debt has soared.
By the time the World Trade Organization determined that China’s credit card market must be opened to international companies, the country’s internal card network, UnionPay, had grown to become the largest card payment system in the world.
Visa, MasterCard, and American Express are now actively lobbying for the acceptance of their cards in the country.
Until then, foreigners in China may find it inconvenient to utilize disposable plastics. Some foreigners find it necessary to carry both an international and a domestic Visa or Mastercard because while foreign cards are accepted at many Middle Kingdom stores, domestic cards are not.
UnionPay is widely recognized outside of China, and its presence in the Americas, Europe, and the Middle East has been slowly growing as retailers compete for the money of affluent Chinese travelers.
As of the end of the third quarter of 2011, approximately 270 million credit cards had been issued in China, representing a 20% year-over-year increase in usage. Credit card default is on the rise in China, just as these cards are being issued. The rate of defaults increased by 6.7% for the month of May in 2011.
It is preferable to avoid defaults in China. If you have a credit card debt of more than 10,000 yuan ($1,584) and you don’t pay it, you could face criminal prosecution, according to a statement issued by Beijing in 2010.
As in other East Asian countries, Chinese banks verify an applicant’s salary and personal information before issuing a credit card, which may be issued either on a revolving debt or short-term payment basis.
Those who are not from the United States are additionally instructed to provide information for an international credit card issued in their native country. If the foreigner departs China before his obligation is settled, the bank will put the remaining balance on his foreign credit card.
As more individuals turn to debt to get by, credit cards have risen in popularity to become one of the most widely used forms of plastic money. Naturally, the concept is approached differently in different countries, depending on local customs and the level of economic growth in the country.