Credit Card Utilization and Consumption Over the Life Cycle and Business Cycle

71 Pages Posted: 19 Feb 2018

See all articles by Scott Fulford

Scott Fulford

Consumer Financial Protection Bureau

Scott D. Schuh

Federal Reserve Bank of Boston - Research Department

Multiple version iconThere are 2 versions of this paper

Date Written: September 2017

Abstract

The revolving credit available to consumers changes substantially over the business cycle, the life cycle, and for individuals. We show that debt changes at the same time as credit, so credit utilization is remarkably stable. From ages 20–40, for example, credit card limits grow by more than 700 percent, and yet utilization holds steadily at around 50 percent. We estimate a structural model of life-cycle consumption and credit use in which credit cards can be used for payments, precautionary smoothing, and life-cycle smoothing, uniting their monetary and revolving credit functions. Our estimates predict stable utilization closely matching the individual, life-cycle, and business-cycle relationships between credit and debt. The preference heterogeneity implied by the different uses of credit cards drives our results. The revealed preference that some people with credit cards borrow at high interest, while others do not, suggests that around half the population is living nearly hand to mouth.

Suggested Citation

Fulford, Scott and Schuh, Scott, Credit Card Utilization and Consumption Over the Life Cycle and Business Cycle (September 2017). Consumer Financial Protection Bureau Office of Research Working Paper No. 2017-03. Available at SSRN: https://ssrn.com/abstract=3124451 or http://dx.doi.org/10.2139/ssrn.3124451

Scott Fulford (Contact Author)

Consumer Financial Protection Bureau ( email )

United States

Scott Schuh

Federal Reserve Bank of Boston - Research Department ( email )

600 Atlantic Ave.
Boston, MA 02210
United States
617-973-3941 (Phone)
617-619-7541 (Fax)

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