NEW YORK (Reuters) - Consumers have tightened their belts to the point where they could take on a lot more debt if they wanted it.

A customer shops in a Sam's Club in Arkansas, June 3, 2010. REUTERS/Sarah Conard

But they don’t.

The average credit score rose to 704 in July, a level not seen since the first quarter of 1998, according to data that Equifax Inc EFX.N, one of the largest U.S. credit bureaus, provided exclusively to Reuters.

That means lenders consider consumers to be improved credit risks and would be happy to have more of them as customers. Yet many consumers still seem to find debt too risky, said Dann Adams, an Equifax executive.

“Traditionally, what you see is after a recession is that consumers are the engine on the locomotive for economic growth,” Adams said. “Now it looks like they’re the caboose.”

The data is based on Equifax’ 200 million-plus files of U.S. consumers using credit. The credit risk score forecasts the likelihood a consumer will fall 90 days or more behind on debt within two years, with 850 the highest score. The higher the score, the less likely a borrower will fall behind on debt.

A decline in debt mirrored the rise in credit scores.

July saw total consumer debt outstanding fall to $10.8 trillion from a peak of $11.5 trillion in October of 2008. Consumer debt includes mortgages and credit cards. See related graphic: link.reuters.com/muf94n

The savings rate rose to 6.4 percent in June from 6.3 percent in May to reach the highest level since June of last year.

“The big question is whether that money moves back into the economy,” Adams said.

This protracted reluctance on the part of consumers to take out debt and spend it is unmatched in recent memory.

Even after the September 11, 2001 attacks on New York City’s World Trade Center, spending rebounded within four months, he said.

The United States will not see a similar upward trend until unemployment abates and home values stabilize, Adams said, adding he doubts the unemployment numbers will drop in the near-term.

In the meantime, U.S. consumers are husbanding their resources instead of spending on items big or small.

Demand for home loans rose the week of August 6, but only by less than 1 percent, even though 30-year loan rates fell to 4.57 percent, the lowest in 20 years of recording keeping by the Mortgage Bankers Association. See related graphic: link.reuters.com/fuv34n

Even everyday indulgences are less in favor. Revolving balances on bank-issued credit cards have fallen to 2005 levels, to $716.9 billion in July from a peak of $835.7 billion in October 2008.

“Credit card balances reflect whether consumers are going out to dinner and buying clothes and they are continuing to drop,” Adams said. “Consumers do not have confidence and prefer to build up their balance sheets instead of spend.”

There likely is some pent-up demand in the U.S. economy, Adams said, pointing to a very slight uptick in automobile debt in some states such as California and Texas. But that consists mainly of necessary upgrades, not the discretionary spending that fuels a roaring economy.

“You’ve got cars that have to be replaced,” Adams said. “It becomes a necessity.”

Spending usually rises around the winter holiday season, a pattern that held in 2009, Adams said.

But the latest data is anything but reassuring to retailers and others who depend directly on the U.S. consumer for profits.

“It certainly points to an uncertain retail season,” he added. “What we’re seeing is a fundamental shift in consumer behavior.”