Credit Karma’s State of Credit and Debt Report: 3rd quarter 2020

Stylized woman considers the state of her credit and debt Image: Stylized woman considers the state of her credit and debt

In a Nutshell

Credit Karma members on average had 9% more overall debt in the third quarter of 2020 than they did in the same period a year ago — but total average credit card debt was down nearly 4% for members compared with the same period in 2019.

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Total overall debt was up 9% in the third quarter of 2020 compared with the same period in 2019 among Credit Karma members, but average credit card debt was down nearly 4% year-over-year.

Those are some of the main takeaways from Credit Karma’s latest quarterly State of Credit and Debt Report, an analysis of aggregated Credit Karma debt and credit data that keeps a pulse on the state of credit and debt around the country. (Learn more about our methodology.)

For this latest edition of the report, we looked at data from July through September 2020 and compared it with the same period in 2019 to determine year-over-year changes related to overall debt and demand for credit.

Read on for more, including data and analysis by generation and geography.


Credit Karma Stat Snapshot

Debt spotlight

Credit demand trends

Tips for improving credit health


Credit Karma stat snapshot

Among Credit Karma members …

Overall

Average total debt rose 9% year-over-year, going from $69,936 on average in the third quarter of 2019 to $75,898 in the same period in 2020.

Credit card debt averaged $5,734 in the third quarter of 2020, down almost 4% from $5,963 during the same period a year ago.

There were fewer past-due accounts on average in the third quarter of 2020 compared with the third quarter of 2019.

There were the same number of inquiries on average in the third quarter of 2020 compared with the third quarter of 2019.

Generations

In the third quarter of 2020, Generation Z had the least credit card debt with an average of $1,588, and baby boomers had the most, with an average of $8,061.

Gen X had the highest average auto loan debt ($23,622) in the third quarter of this year, along with the most student loan debt ($49,428).

Members of Gen Z and the greatest generation have on average the same number of past-due accounts (one account) in the third quarter of 2020 as they did in the third quarter of 2019. But Millennials, Gen X, Boomers, and the Silent generation have on average made progress on past-due accounts since the third quarter of 2019, going from two past-due accounts on average to one in the third quarter of 2020.

Geography

States that experienced the highest increase in average total overall debt in the third quarter from the same period a year ago were Alaska and Utah (+9%). The lowest increases were Connecticut, Rhode Island, New York and New Jersey (+2%).

Some cities saw big changes in credit card debt: In Detroit, average total credit card debt was up 59% in the third quarter of 2020 compared with the same period in 2019. In Tucson, Arizona, total credit card debt was 40% lower in the third quarter of 2020 compared with the same period in 2019.

Nine states made progress in reducing average open accounts in collections: Alabama, Delaware, Idaho, Nevada, New York, North Carolina, Oklahoma, Rhode Island and Wisconsin. Meanwhile, the average number of open accounts in collections increased in Maine.


Debt spotlight

In the third quarter of 2020, average total overall debt among Credit Karma members was $75,898. That’s a 9% increase compared to the same period in 2019, when average total debt was $69,936.

The graphic below shows the percentage increase in members’ average total overall debt by state in the past year. States with the highest debt increases — led by Alaska and Utah (both 9%) — are shaded darkest.

States with the least increase in debt included New York, New Jersey, Rhode Island and Connecticut (all 2%).

Credit card debt

Average total credit card debt among Credit Karma members was down nearly 4% year-over-year in the third quarter of 2020.

 

Q3 2019

Q3 2020

Average credit card debt

$5,963

$5,734


  • Credit Karma members in some cities made significant strides in lowering their average credit card debt, while members in other cities increased their credit card debt, our data showed.
  • Credit Karma’s Gen Z members had the least credit card debt among all generations in the third quarter of 2020. Baby boomers had the most, with Gen X not far behind.
  • Millennials reduced their average total credit card debt more than other generations in the third quarter of 2020 compared with the same period a year earlier, seeing a reduction in average total credit card debt of a little over 5%.

Average credit card debt by generation, Q3 2020

Generation

Average credit card debt

Gen Z

$1,588

Millennial

$4,584

Gen X

$7,365

Baby boomer

$8,061

Silent

$7,308

Greatest

$5,498

Based on Credit Karma members with credit card debt in Q3 2020.

Auto loan debt

Average total auto loan debt was up almost 4% among Credit Karma members in the third quarter of 2020 compared with the third quarter of 2019.

 

Q3 2019

Q3 2020

Average auto loan debt

$18,716

$19,400

  • Auto loan debt is highest for those with fair — but not great — credit scores. Our analysis found that Credit Karma members with average VantageScore 3.0® credit scores from 660 to 719, which are considered within the fair to low end of the good ranges, carried the highest average auto loan debt at $23,008 in the third quarter of 2020.
  • Gen Zers saw the biggest rise in auto loan debt, but Gen X pays the most. Gen Z members saw their average total auto loan debt rise the most of any generation, up nearly 7% in the third quarter of 2020 compared with the year-ago period. However, Gen X members had the highest average auto loan debt at $23,622.

Mortgage debt

Average mortgage debt among Credit Karma members was more than 7% higher in the third quarter of 2020 compared with the same period a year ago.

 

Q3 2019

Q3 2020

Average mortgage debt

$179,073

$191,890

  • Credit Karma members in Hawaii had the highest average open mortgage balance in the third quarter of 2020 at $384,520. California was close behind and is home to the city with the highest average open mortgage balance, San Francisco, at $636,864. The city with the lowest average open mortgage balance was New Orleans, at $106,868.

For a look at cities with the highest average monthly mortgage payments in the third quarter, take a look at the graphic below.

  • There are signals the youngest generations — millennials and Gen Zers — are getting into the housing market. The average open mortgage debt for millennials in the third quarter of 2020 was $216,404. Meanwhile, Gen Z members saw their average mortgage debt rise nearly 11% in the third quarter of 2020 to $161,884 compared to $150,840 in the same period last year.

Student loan debt

Average total student loan debt among Credit Karma members was up almost 8% in the third quarter of this year compared to the same period a year earlier. Keep in mind that from March 13, 2020, through Sept. 30, 2020, the interest rate for federally owned loans was set to 0%, and mandatory payments for these loans were suspended.

Under the CARES Act, all principal and interest payments on federally held student loans was automatically suspended through Sept. 30, 2020. An executive action by President Donald Trump extended that time frame to Dec. 31, 2020.

Privately owned student loans lenders were not required to suspend the accrual of interest or the collection of payments. The data below reflects debt reported to TransUnion as student loan debt and may include data for both private and federal student loans.

 

Q3 2019

Q3 2020

Average student loan debt among members

$34,846

$37,498

  • Gen X had the most student loan debt. Our data shows that Gen X members had more than three times as much student loan debt on average as Gen Z members in the third quarter of 2020.

Average student loan debt for members by generation, Q3 2020

Generation

Average student loan debt

Gen Z

$15,125

Millennial

$37,010

Gen X

$49,428

Baby boomer

$48,252

Silent

$38,071

Greatest

$37,100

  • Average student loan balances were highest for Credit Karma members in Maryland and lowest in Utah. The average student loan payment was highest in Maryland at $47,363 and lowest in Utah at $31,646.

The number of average credit inquiries across all Credit Karma members was steady in the third quarter of 2020 compared with the year-ago period, indicating about the same level of demand for credit year-over-year.

 

Q3 2019

Q3 2020

Average total inquiries

5

5

  • Gen X and millennial Credit Karma members had the most credit inquiries on average, with six — while members of the silent and greatest generations had four inquiries on average.
  • The number of inquiries also varied by city. San Francisco-area Credit Karma members had an average of three inquiries on their reports in the third quarter, well below the average of five. On the other hand, Credit Karma members had an average of eight inquiries in Indianapolis, Indiana; Aurora, Colorado; Arlington, Texas; Portland, Oregon; and Norfolk, Virginia.

Tips for improving credit health

Our latest data report shows that Credit Karma members in general have been making strides in paying down their credit card debt, which is something that can help your overall credit health. If you’re still working on the path toward credit improvement, take heart: It’s possible to improve your credit once you understand how it works — and then use it carefully and strategically. We’ve got some tips to help.

Understand what factors affect your credit scores

Your payment history, or how often you’ve made on-time payments, is one of the most important factors in determining your credit scores. That’s why it’s so important to pay at least the minimum balance on your bills on time.

Your scores are also affected by factors like credit utilization (how much of your available credit you’re using), your length of credit history and more. If you have an account in collections or an overdue account, you’re not alone — but keep in mind that they can affect your credit scores.

What factors affect your credit scores?

Understand how to use good credit to your advantage

Generally, when you have a better credit profile, it may be easier to qualify to borrow the money you need — and at a lower cost — than if you have credit that’s not as strong.

For example, Credit Karma members with good credit scores in the third quarter of 2020 had the most auto loan debt. This might be because they were able to borrow enough to afford the vehicles they wanted.

Borrow only what you need

Taking on additional debt that you don’t pay off right away could cause your credit scores to drop, since utilization is a key factor in credit scores. It’s generally considered a good rule of thumb to make sure you’re using under 30% of the total credit you’re borrowing.

Although Credit Karma member debt overall was up 9% from in the third quarter of 2020 compared with the same period a year ago, average credit scores increased among members. One reason might be that credit utilization ratios weren’t dramatically affected.

Credit Karma Guide to Debt

Be picky about the types of debt you do take on

Some types of debt are considered better than others. Mortgages or student loans may cost more upfront but are considered to be good debt because they may lead to longer-term financial gains.

Credit card debt might not cost as much upfront, but it doesn’t leave you with appreciating assets — so it’s considered bad debt.

Keeping your “bad debt” as close to zero as possible can help strengthen your credit profile.


Methodology

To determine averages across overall debt (including but not limited to credit card, mortgage, personal loan, student loan and auto loan debt) and credit-seeking trends in the third quarter of 2020 (July to September), we analyzed the data of more than 80 million U.S. Credit Karma members in aggregate. All aggregate data analyzed came from members’ TransUnion credit reports. For the purpose of this analysis, card debt is defined as any unpaid balances existing on members’ credit cards or credit card statements at the time the data was pulled. We also looked at aggregate data of more than 22 million U.S. members with ZIP codes in the top 100 most-populated U.S. metro areas to see trends by geography. All numbers in this report were rounded to the nearest whole.


About the author: Paris Ward is a content strategist at Credit Karma, providing readers with the latest news that will aid their financial progress. She has more than a decade of experience as a writer an… Read more.