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New report explores the extent of revolving in the U.S. credit card market

We released a data point which explores patterns of revolving and repayment of credit card accounts in the United States. This data point offers insights on how consumers use their credit cards as a line of credit rather as a payment mechanism, a topic which has not been the subject of extensive prior research.

Credit cards are complex financial instruments that have become important as tools for managing household finances. They provide a safe and convenient method of paying for goods and services, at times with added benefits such as rewards. They also provide an open-ended line of credit from which to borrow, often at rates that are higher than other forms of available credit. At the end of each billing cycle, cardholders can repay their balances in full. In doing so, they are said to transact a balance. Alternatively, cardholders may choose to repay only a portion of their balance, borrowing the unpaid portion.  In this case they are said to revolve a balance. 

Unlike more traditional fixed term installment loans, such as mortgages or auto loans, credit card revolvers may increase or decrease the balances they revolve over time. Repayments associated with any given balance can also vary greatly, with cardholders paying as little as the minimum payment due, or as much as the total outstanding balance as of the payment due date. As a result, cardholders may revolve for short periods or for many months or years. 

This report studies patterns of revolving and repayment of credit card accounts in the United States. Using data from our Credit Card Database (CCDB), it examines how often balances are revolved on an account, or borrowed, how long balances are revolved, and how regularly they are paid down. 

Main findings from the report

Two thirds of actively used credit card accounts carry a revolving balance

Once people pay less than the balance due and begin to revolve on an account, they do so continuously on that account for about 10 months on average, with approximately 15 percent revolving continuously for two years or more. The longer a balance is revolved on an account, the higher the chances that people will continue to revolve a balance on that account.  

Accounts show variation in repayment patterns 

Some revolvers appear to take on debt on a particular account and then make regular payments on this debt. Others revolve a more-or-less constant amount on an account for long periods with little pay down until a lump-sum payment of the balance in full.  Still others show an increase in balances on an account over the length of their revolving debt, with rapid pay down just prior to complete repayment. 

This suggests there may be a variety of factors underlying revolving decisions among households; furthermore, the variation in repayment profiles is observed for both high and low credit score accounts, which implies that repayment is not easily predicted by cardholders’ credit score at the outset of revolving. 

There is substantial geographic variation in revolving rates and the duration of sustained debt periods

This variation endures after accounting for differences in credit scores just prior to revolving and is stable over time. This suggests that perhaps factors other than risk or market structure, such as for example preferences or local norms, may play a role in how and why individuals choose to revolve balances on their credit cards.

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