Opinion: Has Quiet Luxury Migrated to Credit Cards?

Quiet luxury may be coming to credit cards. New data from the Philadelphia Fed shows that issuers are upping their credit lines for the top 10% of credit card consumers — allowing them the luxury of having a lot more buying power. 

With that higher credit line, of course, comes a better utilization rate, provided they don’t change their spending habits. 

That in turn boosts their credit score even more, potentially creating a virtuous cycle of improving credit and rising spending power. 

At the same time, another group is moving toward becoming minimalists, whether they like it or not. 

According to the same study by the Philadelphia Fed, the percentage of accounts paying only the bare minimum payment hit a 12-year-high. 

That is up 25 basis points from the last high in the previous quarter.  

What this tells us is that, as much as the wealthiest can continue to spend on their credit cards and pay their bills, there is a growing class of consumers who are stretched thin and barely able to keep up with even the most minimal payments each month. 

To the uninformed, quiet luxury is when things look like ordinary basic consumer goods but in reality are understated luxury goods. 

For example, a CEO may appear to be wearing a simple, plain black sweatshirt. In reality, it is from a high-end designer and made of an expensive material. It may be imported, and it may even be custom-made. But most of all, it is quiet — meaning only those who know, know. 

In the case of credit cards, the cards appear to be similar, but in reality, the terms underlying those cards are much different for each group based on how desirable they are as clients for the credit card issuers. 

On the surface, the financially stretched consumer who is making just the minimum payment each month — and therefore also paying interest — is the most profitable to issuers. 

However, that comes with one big red flag: risk. Given how expensive credit card debt is, most consumers who have the money to make more than the minimum payment would be highly incentivized to do so. 

If they aren’t, odds are they are in some kind of financial distress and may not be able to make payments in the future. In fact, the high interest that is compounding will only add to whatever financial stress they are already experiencing. 

Things could get ugly. Remember, the debt is unsecured debt, and if they default, the credit card issuer may not get paid. 

The top-tier client, on the other hand, may not be paying interest, but they might spend more. Credit card issuers take a cut of every transaction. So, every time that consumer buys something, they get the revenue — and this is key — without the risk. 

Even the marketing for credit cards can reflect how the companies treat different consumers. Premium cardholders will get very different messaging. But there is a good reason for that. 

A client who can barely pay their bills will not be at the top of the list for things like exclusive concierge services, tickets to trendy experiences, and promotional offers to tempt them to upgrade their cards and get even more rewards. 

In fact, that’s the last thing they are thinking about. 

The bottom line: quiet luxury is no longer just about under-the-radar fashion or traveling to destinations only those who know, know. 

It is also about financial opportunities that aren’t available, or even known, to the general public.