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

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.