E. Gordon Gee President at West Virginia University | Twitter Website
E. Gordon Gee President at West Virginia University | Twitter Website
West Virginia University (WVU) research has uncovered significant insights into credit card behaviors among U.S. consumers, highlighting a division between those who pay off their balances monthly and those who carry debt over time. The study, led by Scott Schuh, an associate professor at the WVU John Chambers College of Business and Economics, identifies two distinct groups within the 80% of U.S. adults who hold credit cards.
Schuh explains that about half of these cardholders use their cards for regular purchases and settle their balances each month without incurring interest. In contrast, the other half finance purchases over time, revolving their credit card balances and paying higher interest rates that have increased from an average of 15% to around 22%.
The research also reveals a curious pattern: when credit limits change, so does credit card debt for both groups. This phenomenon is explored in a model published in the Journal of Monetary Economics. Schuh notes that for those carrying a balance, increased credit provides a buffer against future financial shocks and leads to more spending and higher debt. Conversely, individuals who pay in full each month adjust their spending based on current income levels.
“Both groups have stable patterns of credit card use, but for very different reasons,” Schuh said.
Credit limits typically rise rapidly early in adulthood and continue to grow with age. Despite this increase in available credit, default rates tend to decline as consumers age. Schuh attributes most defaults to unexpected events beyond consumer control.
The model draws on comprehensive data from major credit bureaus like Equifax, Experian, and TransUnion. These datasets provide a complete view of individual consumer debt rather than isolated account information.
In 2023, Schuh coauthored another paper published in the Journal of Money, Credit and Banking that outlines methods for identifying revolving behavior within credit bureau data.
“Of course, there are more than just two distinct populations of credit card users,” Schuh acknowledged. “But separating people into those two groups helps explain simply several facts about credit card use and consumption.”
Schuh highlights that people who save extensively might occasionally borrow money after setbacks but usually repay quickly. In contrast, individuals holding long-term debt at high-interest rates miss out on risk-free investment opportunities.
The study suggests policymakers could consider increasing credit limits during recessions as an economic stimulus measure instead of offering cash rebates since revolving consumers often increase consumption proportional to their available credit.
“Because revolving consumers tend to increase their consumption proportional to their credit limit," Schuh said, "our model suggests that policymakers could consider increasing credit limits in recessions to stimulate the economy."
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