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Credit Card Debt and Consumer Payment Choice: What Can We Learn from Credit Bureau Data?

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  • Joanna Stavins

    (Federal Reserve Bank of Boston)

Abstract

We estimate a two-stage Heckman selection model of credit card adoption and use with a unique dataset that combines administrative data from the Equifax credit bureau and self-reported data from a representative survey of consumers. Higher-income consumers carry higher credit card balances, but they tend to repay those balances each month. Credit card revolvers have lower income and are less educated. Revolvers are twice as likely to use debit cards as credit cards for payments, but they carry much higher balances on their credit cards. The high cost of paying off credit card debt likely exacerbates existing inequalities in disposable income. Unlike the mortgage market, we find no evidence for lenders’ cutoff between subprime and prime consumers in the credit card market.

Suggested Citation

  • Joanna Stavins, 2020. "Credit Card Debt and Consumer Payment Choice: What Can We Learn from Credit Bureau Data?," Journal of Financial Services Research, Springer;Western Finance Association, vol. 58(1), pages 59-90, August.
    • Handle: RePEc:kap:jfsres:v:58:y:2020:i:1:d:10.1007_s10693-019-00330-8
    DOI: 10.1007/s10693-019-00330-8
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    Cited by:

    1. Scott L. Fulford & Scott Schuh, 2020. "Revolving versus Convenience Use of Credit Cards: Evidence from U.S. Credit Bureau Data," Working Papers 20-12, Department of Economics, West Virginia University.
    2. Claire Greene & Joanna Stavins, 2022. "Credit Card Debt Puzzle: Liquid Assets to Pay Bills," FRB Atlanta Working Paper 2022-9, Federal Reserve Bank of Atlanta.
    3. Krivorotov, George, 2023. "Machine learning-based profit modeling for credit card underwriting - implications for credit risk," Journal of Banking & Finance, Elsevier, vol. 149(C).
    4. Swanton, Thomas B. & Gainsbury, Sally M., 2020. "Debt stress partly explains the relationship between problem gambling and comorbid mental health problems," Social Science & Medicine, Elsevier, vol. 265(C).
    5. Di Johnson & John Rodwell & Thomas Hendry, 2021. "Analyzing the Impacts of Financial Services Regulation to Make the Case That Buy-Now-Pay-Later Regulation Is Failing," Sustainability, MDPI, vol. 13(4), pages 1-20, February.
    6. Michiel Bijlsma & Carin Cruijsen & Nicole Jonker, 2023. "Consumer Willingness to Share Payments Data: Trust for Sale?," Journal of Financial Services Research, Springer;Western Finance Association, vol. 64(1), pages 41-80, August.
    7. Liu Hong Shan & Kenny S. L. Cheah & Serrene Leong, 2023. "Leading Generation Z’s Financial Literacy Through Financial Education: Contemporary Bibliometric and Content Analysis in China," SAGE Open, , vol. 13(3), pages 21582440231, August.
    8. Catalina Anampa Castro & Katherine Curtis & Jack DeWaard & Elizabeth Fussell & Kathryn McConnell & Kobie Price & Michael Soto & Stephan D. Whitaker, 2021. "Migration as a Vector of Economic Losses from Disaster-Affected Areas in the United States," Working Papers 21-22, Federal Reserve Bank of Cleveland.
    9. Scott L. Fulford & Scott Schuh, 2023. "Revolving versus Convenience Use of Credit Cards: Evidence from U.S. Credit Bureau Data," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 55(7), pages 1667-1701, October.
    10. Świecka, Beata & Terefenko, Paweł & Paprotny, Dominik, 2021. "Transaction factors’ influence on the choice of payment by Polish consumers," Journal of Retailing and Consumer Services, Elsevier, vol. 58(C).

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    More about this item

    Keywords

    Credit card debt; Consumer payments; Consumer preferences;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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