Revolving versus Convenience Use of Credit Cards: Evidence from U.S. Credit Bureau Data

Abstract

Credit card payments and revolving debt are important for consumer theory but a key data source—credit bureau records—does not distinguish between current charges and revolving debt. We develop a theory‐based econometric methodology using a hidden Markov model to estimate the likelihood a consumer is revolving debt each quarter. We validate our approach using a new survey linked to credit bureau data. We estimate that for likely revolvers: (i) 100% of an increase in credit becomes an increase in debt eventually; (ii) credit limit changes are half as salient as debt changes; and (iii) revolving status is persistent.

Income and the CARD Act’s Ability-to-pay Rule in the US Credit Card Market

“…Perhaps surprisingly, although revolving debt reduces the likelihood of credit limit increase, it does so by an economically insignificant amount. is highly predictive of revolving (Fulford and Schuh 2023). When we drop utilization from our regression analysis but keep revolving (not shown separately), we find that revolving has a positive effect on the probability of a credit limit increase.…”

“…Fulford (2015) documents that consumers face substantial credit limit volatility, which affects their desire for other liquidity. Gross and Souleles (2002) and Fulford and Schuh (2023) show that when credit limits change, most of the change passes through to a change in debt. Aydin (2022) uses an experiment to show that this relationship between credit limit changes and debt changes is causal.…”

Household Financial Transaction Data

“…4 Similarly, researchers employing data from credit bureaus can track some aggregated versions of household spending through the observation of credit card balances. Durables purchased with debt, such as vehicles and homes, are well tracked in such data, but credit card balances mix revolving debt with current charges (see Fulford & Schuh 2020), making it difficult to ascertain the flow of household consumption even when all household purchases are made via credit card rather than debit or cash spending.…”