Americans turn to credit cards to finance school shopping

Since the end of the recent recession, consumers have been making more concerted efforts to pare back their spending for most of the year, and those efforts have largely been successful. However, August saw an increase in spending on credit and debit cards.

The number of transactions conducted by consumers on their debit and credit card accounts increased significantly last month, according to the latest SpendTrend report from the analysis firm First Data Corporation. Overall, the amount of money spent on these transactions, as well as those involving checks, increased 7.2 percent on an annual basis, the largest such increase since March.

At the same time, the total number of transactions grew 6.5 percent year-over-year, which was also an increase from March's previous high, the report said. The average cost per transaction, meanwhile, grew 0.6 percent.

Behind the numbers
In all, the amount of money spent of credit card transactions made during the month grew 5.4 percent as consumers continued to put more on these cards to finance sizable purchases, the report said. Further, that growth was actually eclipsed by both types of debit transactions, PIN and signature. The dollar volume on debit purchases in which the cardholder entered their PIN code rose 9.3 percent on an annual basis, while those involving signatures saw values jump 7.9 percent.

Meanwhile, the amount of check purchases declined 3.2 percent, the report said. And in a possibly surprising turn of events, the amount of money spent on purchases made using prepaid debit cards slipped 4.2 percent despite this being a very popular payment option, particularly among consumers who do not have traditional banking accounts.

The reason for the increase
There have been sizable upticks in monthly spending on credit and debit cards in the past several months, and many have been attributed to rising prices for necessities such as gas and groceries, the report said. And while higher gas prices were once again a contributing factor in August, the dollar value of the average purchase actually increased across several industry categories, indicating that consumers had a greater appetite to spend in general.

"Consumer spending got a boost in August as consumers took advantage of back-to-school and seasonal clearance sales," said Rikard Bandebo, a vice president and economist at First Data. "Last year, August 2011 growth was particularly strong so the difficult comps made the results all the more impressive. Also, a slightly earlier Labor Day holiday this year may have shifted some purchases into August. Merchants will be watching carefully to see if consumers can sustain this positive momentum in future months."

Retailers benefited from increased spending
The largest increases in spending by category were seen at retail stores, where dollar volume of all transactions at general merchandise stores, including discount retailers, grew 11 percent on an annual basis, the report said. That was the second-largest annual growth seen in the last year. Further, spending at health and personal care stores also surged, rising 8 percent overall.

Overall, consumers have made significant efforts to slash their spending in general, but occasions such as the back-to-school or holiday shopping seasons have typically spurred cardholders out of those more reticent habits. Following these periods, experts have generally seen upticks in credit card spending and even seasonal increases in rates of delinquency, which can lead to default down the road.

Instances of delinquency and default can have significant negative impacts on your credit standing because lenders believe it shows that you are having financial difficulties that put your ability to make payments on time and in full regularly.

However, increased spending can also take a toll on your credit score in another way; the total amount you owe versus your available credit limits makes up the second-largest portion of your overall rating, and therefore the more debt you carry, the lower your standing will be. As such, whenever you take on additional credit card debt, you should always make efforts to pay down as much of that new balance as possible as soon as you can. Doing so will also have the dual benefit of helping you to avoid interest charges on the account, which will save you money in the long run.

But when it comes to making sure your credit standing is as good as it possibly can be, there's more to it than just carefully monitoring your credit card accounts. In fact, you will also need to take the time to regularly check a copy of your credit report. This will help you to identify any potentially unfair markings that may be having a negative impact on your credit rating, and working with a credit repair service may help to clear up these issues.

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