Repeated versus occasional credit revolvers

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Because the SCF is a cross section sample for each survey year and not a panel,
we cannot observe whether a card balance for a given household was a temporary
event or whether that household had carried a balance in the previous months.
However, we use self-reported information to help distinguish habitual revolvers from
those whose card balance is temporary or accidental. In each of the survey waves,
households with credit cards were asked whether they “always or almost always” paid
off the card balance in full each month, they “sometimes” paid it off in full, or
whether they “hardly ever” paid it off. The surveys also collect information on the
new charges made on the bank-type card after payment of the last bill. We use these
new charges data to get an idea of which households who do not carry a balance on
their credit cards appear to actively use their cards.10
Table 1 shows the percentages in each survey year of households who had a
bank-type credit card (column 2), those who had a card but had no balance on the card
and incurred no new charges in the current month (column 3), those who had no
balance but did incur new charges (column 4), and those who had a balance and
hardly ever paid off the balance (column 6; the complementary percentage had a
balance but claimed they usually or sometimes paid off the balance each month).
Bearing in mind the difference in how these variables are constructed in the 1983 and
later SCF waves, it nonetheless appears that the fraction of card holders who had a
card but did not actively use it has declined over time, from about 18 percent of cardholders in 1983 to 10 percent in 1992 and between 7 and 8 percent subsequently.
In all survey waves, the largest percentages of card-holder households who do
not use their cards are those who are over 65, have no more than a high school
education, and generally are those with incomes under $25,000. It is possible that
these households are passive cardholders who have been issued a card without
actively seeking one. Alternatively, they may be concerned about their ability to
control their spending, and prefer to consider the card for emergency use only.
Additional information available only from the 1998 and 2001 Surveys indicates that
households in this category were about twice as likely to have ever declared
bankruptcy as card-holders who did not carry a balance but did record active card use,
suggesting some role for concerns about over-spending and the social stigma of
delinquency and bankruptcy.
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A little less than 40 percent of card-holder households from the 1992-2001
waves had no outstanding balance on their credit card but did record new charges
during the month (column 4). For the 1983 SCF, a comparable figure is 30 percent of
cardholders who had no balance, but claimed they used their card “often” or
“sometimes.” These households appear to use their credit cards for ease of
transactions and perhaps to benefit from the float offered by deferring payment until
the credit card bill is due. According to the 2001 survey, 96 percent of these
households report that they “always or almost always” pay off their balance in full
each month. In all surveys, the percentages of card-holder households that fall into
this category are largest for older households and those with a college degree and at
least $100,000 in income: households that presumably have less need to borrow
especially at high rates of interest, which are likely to face less income variability, and
are more likely to have a sufficient buffer-stock of assets to tide them over income
fluctuations. In 1998 and 2001, these households were also the least likely to have
declared bankruptcy in the previous 10 years.
About a quarter of all card holders in 2001—and almost half of those who had
a balance outstanding on their card—admitted to “hardly ever” paying off the balance
each month (column 6). These fractions are relatively unchanged from earlier waves
of the SCF. For the most part, this percentage is not much affected by age, education,
or income, with the exception that households with incomes over $100,000 are less
likely to fall into this category. The fact that this behavior cuts across many
demographic and income groups suggests that frequent card revolvers may be
motivated by factors other than simply a “need to borrow.” One category of
households that does seem to have increased slightly over time is cardholders who
claim they “always or almost always” pay off the balance in full but nonetheless had a
balance outstanding at the time of the survey: that percentage has drifted upwards
from less than 10 percent of cardholders in 1992 (18 percent of those with a balance)
to 12 percent in 2001 (22 percent of those with a balance). These households may be
accidental revolvers who typically do pay off balances but for whatever reason carried
a balance in the month preceding the survey.
Table 5 explores the relation between the percentage of U.S. households who
have been denied credit by credit card ownership and card payment status. This
“liquidity constrained” information is taken from a series of questions asked in the
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SCF on whether the household, in the previous five years, had been turned down for
credit or had not received as much credit as requested (and had not received the full
credit amount on reapplying), or had not applied for credit because they thought they
would be turned down. Roughly one-third of households without a bank-type credit
card can be classified as “liquidity constrained” according to this definition.
Interestingly, as the fraction of households with at least one bank-type credit card has
grown, so has the fraction of these card-holder households that can be classified as
“liquidity constrained”: from 12 percent in 1983 to 17 percent in 2001.
For 1992-2001, we can further distinguish the type of credit for which the
household was turned down; roughly one-third of card holders apparently had
requested additional credit in the form of a credit card. Households with no balance on
their card but with new charges are the least likely to be credit constrained; only about
6 percent are so classified for any type of credit, and about 4 percent for credit other
than a credit card. Roughly one-third of the frequent credit card revolvers (those with
a balance who hardly ever pay it off in full) can be classified as “liquidity
constrained” but only one fifth identify the type of credit denied as other than for a
credit card. In other words, about 80 percent of frequent card revolvers do not claim
that they have been denied another form of credit. Although they do not appear to be
revolving credit card debt by default, they may have decided that switching to lower
cost forms of credit is too costly in terms of transactions or time costs, or they may be
unaware that other sources of credit, possibly at more attractive terms, are available.

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