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American credit card applications are back to pre-pandemic levels, a trend that bodes well for the economic recovery but could backfire if surging inflation impacts consumers’ ability to pay off their debt.

According to a recent survey from the New York Fed, the application rate for credit cards rose throughout 2021, reaching 26.5% in October. 

That's 10.8 percentage points higher than a year ago, which was a record low of 15.7% amid the pullback in spending during the early months of the pandemic.

Just over 11% of Americans also applied for credit-card limit increases in October, a rebound from about 7% for the same months last year and just below 12% in October 2019, months before the pandemic hit, according to the bank’s Center for Microeconomic Data survey.

The report also said application rates for all types of credit returned to pre-pandemic levels throughout 2021, after dropping by 11 percentage points to a record low in October 2020.

The survey also shows American households expect to request more of various types of credit in the future, including mortgages, credit cards, limit increases and auto loans. 

For instance, 12% of respondents said they were likely to apply for a credit card over the next year, up from 8.3% a year ago, while nearly 7% said they planned to apply for a credit card limit increase over the next 12 months, versus 5.8% in October 2020.

Banks have been boosting their marketing budgets to get more consumers to sign up for credit cards and easing borrowing restrictions and offering rewards for travel other promotions.

The concern is whether consumers fully understand what they’re signing up for with some credit cards.

For instance, a WalletHub survey of more than 300 American consumers shows 56% of Americans don’t know how deferred-interest credit cards work. 

The lack of knowledge, The Street reports, could lead to a large bill later on if you pay one month’s bill late, or even owe as little as $1 when the promotional period ends.

Americans have an average of 2.33 retail credit cards and an average balance on those cards of $1,887, according to Experian’s 2021 State of Credit Report.

That report also notes that consumers are managing credit well, with the average credit score climbing seven points since 2020 to 695, the highest point in more than 13 years.

Still, not all consumers are keeping up with their credit card payments: A recent NerdWallet survey found that 29% of consumers who put holiday gifts on a credit card last year still haven’t paid off their balances. 

The survey of about 2,000 Americans also shows three-quarters of holiday shoppers this year will use credit cards to pay for gifts, charging an average of $620.

The New York Fed said recently that total household debt increased nearly 2% or by $286-billion to $15.24 trillion in the third quarter of 2021. 

Credit card balances increased by $17 billion, the same size increase as in the second quarter, and $123 billion lower than at the end of 2019.