New data from the Federal Reserve indicates a notable shift in consumer borrowing habits, with households pulling back on credit card spending even as total consumer credit continues to expand. Released April 7, the figures for February suggest a more selective approach to debt, prioritizing planned expenses over discretionary credit card use.
Overall consumer credit increased at a 2.2% annual rate in February, a modest rise from the 1.8% rate observed in January. This expansion underscores that borrowing remains a crucial support for consumption, despite a backdrop of weakening economic expectations among consumers. However, a closer examination of the components reveals a clear divergence in how this credit is being utilized.
Nonrevolving credit, which encompasses significant financial commitments such as auto loans, student loans, and personal loans, saw a robust acceleration. This category surged at a 2.8% annualized pace in February, marking a substantial increase from the prior month and accounting for the majority of the overall credit expansion. These forms of credit are typically associated with long-term financial decisions and planned expenses, often financing essential needs rather than impulse purchases. Interest rates for these products have remained relatively stable; for instance, auto loan rates for common terms stand at approximately 7.5%. This stability, even at elevated levels, appears to be facilitating continued use of installment credit for larger, necessary acquisitions.
In stark contrast, revolving credit, predominantly credit card balances, presented a different picture. The growth rate for credit card balances slowed dramatically, increasing at a mere 0.6% annual rate in February. This represents a significant deceleration from the 2.3% rate recorded in January. This slowdown follows a period in 2025 when revolving balances expanded more rapidly than other forms of borrowing, suggesting a recent shift in consumer behavior. Despite this moderation, credit cards remain central to everyday transactions, with their Annual Percentage Rates (APRs) holding near 21%.
The diverging trends between installment and revolving credit highlight a more deliberate and cautious approach to borrowing among households. Consumers appear to be reserving credit for specific, often larger, purposes while exercising increased prudence with short-term, revolving debt. This behavior suggests a strategic allocation of financial resources, where credit serves both as a planning tool for anticipated expenses and a buffer for unexpected needs. When economic uncertainty rises, the planning function of credit tends to become more prominent, according to analysis.
PYMNTS Intelligence research corroborates this evolving behavior, indicating that more than half of consumers report using credit primarily for planned purchases. Simultaneously, these consumers maintain access to credit as a fallback for unforeseen expenses, illustrating its dual role in household financial management. This strategic use underscores a consumer base that is active but increasingly discerning in its borrowing decisions.
Adding another layer to this cautious sentiment are consumer perceptions regarding credit access. More than 4 in 10 consumers express doubt about being approved for a new credit card, even though actual denial rates are considerably lower. This disparity between perception and reality can lead some consumers to avoid applying for new credit altogether, thereby limiting the growth of revolving balances.
Survey data from the Federal Reserve Bank of New York further reinforces this cautious tone. Nearly half of respondents, 47%, anticipate that credit will become harder to obtain in the coming year. Concurrently, 36% expect their financial situation to worsen over the next 12 months. These expectations contribute to a more conservative borrowing posture, particularly concerning discretionary credit.
The PYMNTS’ Consumer Expectations Index provides additional context, revealing that while households express confidence in managing their existing obligations, their assessment of current financial conditions remains closer to neutral than positive. This combination of confidence in current management and a neutral-to-negative outlook on broader conditions helps explain the observed moderation in revolving credit. Consumers are maintaining access to credit but appear less inclined to expand balances without a clear, defined need.
For lenders, this trend places a greater emphasis on aligning products with specific use cases, whether that involves financing substantial purchases or providing flexible access to funds during uncertain periods. Merchants may interpret this as a signal of a consumer base that remains active but is more measured in its discretionary spending. For the broader economy, the implication is that credit remains available and in use, though households are approaching it with significantly greater care and selectivity.
