U.S. Household Debt Climbs $35B to $12.3 Trillion

The credit card is coming back, even among people with the lowest credit scores.

In the second quarter, total household debt increased by $35 billion to $12.3 trillion, according to the New York Fed's latest quarterly report on household debt. That increase was driven by two categories: auto loans and credit cards.

While auto loans have been rising at a steady clip for the past six years, rising credit-card balances are a new development. After the recession, households cut back on credit-card use until 2014. Since then, card balances have risen by about $70 billion.

The report underscores how the nation's credit cycle has evolved, from broadly deleveraging in the aftermath of the financial crisis to a renewed—but still tentative—embrace of credit.

From 2008 to 2013, total household debts dropped by more than $1.5 trillion. But first student-loan and auto-loan balances began to rise, and then mortgages and finally credit cards. Total household debt balances are now $400 billion below their 2008 peak.

Credit-card debt had declined as households cut back on their use and as financial institutions cut off credit. These effects were particularly pronounced among people with low credit scores, where the number with a credit card declined by more than 10%, according to a special New York Fed supplemental report on credit cards.

Now, credit cards are returning among individuals with low credit or subprime credit scores below 660. Among people with credit scores between 620 and 660, the share that had a credit card rose to 58.8% in 2015 from a low of 54.3% in 2013. Among those with scores below 620, the number of people with a credit card increased to 50% from a low of 45.6% two years ago. Both figures for 2015 are the highest since 2008.

By contrast, about 88% of people with high credit scores have credit cards, a figure that has changed little over the past decade.

Credit cards can be a useful, if dangerous, tool. Moderate usage can help households smooth consumption, but some come with high interest rates that can spiral out of control. During the recession, many households had balances they couldn't repay and delinquencies skyrocketed. For now, however, credit reports show little sign of distress.

The report "highlights a positive ongoing trend in household debt," said Donghoon Lee, a New York Fed economist. "Delinquency rates continue to improve, even as credit has become more widely available."

Less than 1% of credit card balances are 90-180 days delinquent, the lowest on record in data going back to 2003. Severely derogatory balances, including those that have been written off by banks, are at 6.2%, near the lowest levels in the available data.

Credit-card delinquencies have improved along with most other types of debt. Only 1.8% of mortgage balances were delinquent in the second quarter, the lowest percentage since mid-2007. The number of new foreclosures on credit reports was the lowest in 18 years, the New York Fed said.

While debt delinquencies have generally been improving, student loans have proved a stubborn exception. About 11% of such loans are delinquent, a figure that has shown little improvement in recent years.

The figures come from the New York Fed's Consumer Credit Panel, which analyzes millions of credit records from the consumer credit reporting agency Equifax.

Write to Josh Zumbrun at Josh.Zumbrun@wsj.com