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Credit Cards: Disentangling the Dual Use of Borrowing and Spending

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  • Olga Bilyk
  • Brian Peterson

Abstract

Over the past 15 years, aggregate credit card balances have been increasing, except for a brief spell in the aftermath of the 2007–09 financial crisis. Determining whether the growing balances are due to increased usage of credit cards as a method of payment or whether they reflect increased short-term borrowing is challenging because aggregate balances are snapshots of charges on credit cards before households make their monthly payments. In this note, we exploit household-level survey data to distinguish between the dual use of credit cards for borrowing or paying for purchases.We find that the growth in credit card balances over the past 15 years reflects increased usage of credit cards for payment (i.e., spending) rather than increased short-term borrowing.

Suggested Citation

  • Olga Bilyk & Brian Peterson, 2015. "Credit Cards: Disentangling the Dual Use of Borrowing and Spending," Staff Analytical Notes 15-3, Bank of Canada.
    • Handle: RePEc:bca:bocsan:15-3
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    References listed on IDEAS

    as
    1. Allan Crawford & Umar Faruqui, 2011. "What Explains Trends in Household Debt in Canada?," Bank of Canada Review, Bank of Canada, vol. 2011(Winter), pages 3-15.
    2. Christopher Henry & Kim Huynh & Rallye Shen, 2015. "2013 Methods-of-Payment Survey Results," Discussion Papers 15-4, Bank of Canada.
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    Cited by:

    1. Ho, Anson T.Y. & Morin, Lealand & Paarsch, Harry J. & Huynh, Kim P., 2022. "A flexible framework for intervention analysis applied to credit-card usage during the coronavirus pandemic," International Journal of Forecasting, Elsevier, vol. 38(3), pages 1129-1157.
    2. Jason Allen & Kiana Basiri, 2016. "The Impact of Bankruptcy Reform on Insolvency Choice and Consumer Credit," Staff Working Papers 16-26, Bank of Canada.

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