New Research Reveals That Credit Card Behaviors May Be Set in Stone

Obtaining a credit card for the first time can be a landmark moment in one’s financial life. You may have had to complete numerous applications before a lender approved you for your first card, but there is something empowering about holding your new card in your hand for the first time. 

It’s as if you can almost feel your purchasing power increase as you admire your name embossed on the card’s shiny plastic. Perhaps a lot has changed in your life since the time you first applied for a credit card.

But it’s likely that your strategy for managing your card’s balance — including whether you prefer to pay it off in full each month — has remained more or less the same over time, according to research from West Virginia University (WVU). 

We caught up with Scott Schuh, Associate Professor of Economics at WVU, to gain a better understanding of his research into cardholder financial behaviors over time. 

Schuh told us he worked as a Macroeconomist with the Federal Reserve for 26 years prior to joining WVU’s faculty. At the Fed, Schuh developed data to begin trying to estimate models of consumer payment choice.

“Consumer payment choice is partly the characteristics of the payment instrument itself, but it is also very importantly linked to the personal financial management of the household,” Schuh said. 

“So if you use a debit card, for example, you are intentionally using current liquid assets. But when you buy now and pay later with a credit card, that has a very different effect on your balance sheet and your personal conditions.”

Schuh left the Fed in 2018, but he told us he continues to conduct research using the data he created around cardholder behavior. He also used information from the credit bureaus to inform his research into how consumers change their card management behaviors over time as their credit limits rise. 

Schuh told us the typical cardholder accesses large increases in their credit limits while in their 20s.

Once a cardholder can access larger limits on their card, they establish habits in regard to their balances that can persist for decades, Schuh told us.

“Once you get comfortable with carrying a lot of credit card debt, the vast majority of consumers tend to stay at that level of credit card borrowing for very long periods of time,” Schuh said. “Unless they have really low interest rates, that carrying over of revolving debt is reducing their lifetime consumption.”

Schuh has spent years analyzing credit card data to uncover the reasons why people who carry credit card debt at the beginning of adulthood continue to do so later in life, but the answer may just come down to how patient a cardholder is. 

Schuh told us that the population of cardholders can essentially be split into two groups — those who are patient and those who aren’t.

“The impatient people are the ones that want to buy now and pay later who maybe may not make optimal economic decisions with regard to that because of their impatience,” Schuh said.

People’s lifestyles can change as they further their education and acquire jobs with higher incomes. But many peoples’ strategies for managing their credit card balances remain the same. Schuh told us that it’s unclear why people’s card behaviors remain static while other financial factors in their lives change.

“That is still a puzzle,” Schuh said. “We don’t actually have an answer to what makes some people impatient and some people not.”

Schuh’s research has valuable takeaways for economic policymakers, suggesting that increasing credit card limits can lead to increased consumer consumption. Schuh told us that expanded card limits can stimulate the economy in the short term without requiring out-of-pocket expenses from governmental fiscal policy.

Credit card issuers can also benefit from Schuh’s research by gaining insights into how consumers may react to changes in their credit limits. His findings can help financial educators at credit card companies understand how they can best serve customers who are trying to reduce their credit card debt.

Financial education can help people uncover strategies to improve their approach to money management.

But Schuh said very few people seek out personal financial management tools, and those who do try them don’t tend to stick with them over the long haul.

Credit card issuers interested in imparting sound debt management skills to their customers should seek to consistently provide them with relevant education. Simply providing a one-time course may not be enough to foster long-term changes in cardholder habits.

“When we study these personal financial management education programs, we find that for adults they have an effect in the short run,” Schuh told us. “But as time goes by and they get past the class, they tend to slip back into the old methods. 

“Having a more holistic picture through some sort of financial statement software or budgeting apps can be very helpful to consumers if they use them.”