Consumer Revolving Credit and Debt over the Life Cycle and Business Cycle

Working Paper No. 15-17
by Scott L. Fulford and Scott Schuh
2015 Series

Despite the centrality of credit and debt in the financial lives of Americans, little is known about how U.S. consumers' access and utilization of credit changes in the short and long term, and how these changes are related to changes in U.S. consumers' debt. This paper uses data from the Federal Reserve Bank of New York Consumer Credit Panel (CCP), which contains a 5 percent sample of every credit account in the United States from 1999 to 2014 from the credit reporting agency Equifax. It examines how changing credit availability, debt, and utilization over the business cycle and the life cycle and across individuals relate to U.S. consumers' patterns of incurring, carrying, and paying off their debts. Much of this paper focuses on credit cards, since these have observable limits and are widely held, but the paper also briefly examines other forms of debt over the consumer life cycle.

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  • Key Findings
  • Exhibit
  • Implications
  • Abstract

Key Findings

  • Available credit appears to be the driving factor of U.S. consumers' debt in both the short and the long term. Separating convenience users (those who pay off their credit card debt every month) from revolvers (those who continue to carry a balance from month to month), the authors find that for revolvers a 10 percent increase in credit is followed by a 1.3 percent increase in debt within one quarter, and a 9.99 percent increase in debt over the long term.
  • Credit and debt show extreme life-cycle variation, much larger than the changes in income or consumption. The data show that U.S. consumers' debt increases rapidly in the 20s and continues to increase into the 30s, moving roughly in line with increases in their credit limits. Later in life, consumers' credit card use levels off and then declines after age 50. Overall credit utilization declines slowly over the life cycle, from around 50 percent for consumers in their 20s to around 20 percent for consumers in their 70s. Most of this decline comes as consumers switch from being revolvers to convenience users.
  • Aggregate consumer credit and debt show large business cycle variation as well, again substantially larger than the comparable income or consumption movements. Yet credit utilization has been remarkably stable—much less volatile than credit limits or credit card debt.


The large pass-through of credit into debt and the large life-cycle variation of credit have important implications for savings and consumption over the life cycle of individual consumers. One of the startling facts of consumer finance is how little households save when they are not forced to do so by Social Security or mortgage payments. The rapid increase in U.S. consumers' use of credit as they move from their 20s into their 30s may help to explain why consumers save so little early in life. The findings suggest that early in life some consumers who opt to revolve credit card debt may be constrained by their credit limits but use credit availability as form of wealth, reducing their need to save. In middle age, many households have substantial debt. For these consumers, saving should be mostly about paying down debt. Paying off credit card debt has a riskless return that averages around 14 percent, which no other asset class can match. Thus, the large life-cycle variation in credit and debt suggests why the average household has little in positive assets beyond a small emergency fund and illiquid housing until very late in life. Not taking this into account leads to an incomplete understanding of the financial status of U.S. households.


Little work has examined how unsecured consumer credit, such as the limit on credit cards, varies over the life cycle, and how consumers respond to changes in their ability to borrow over the short and long term. Using a large panel of credit accounts in the United States, we document that large movements in credit from 1999 to 2015 were accompanied by similar movements in debt, so utilization was nearly constant. Life-cycle variation in consumer credit is similarly large. Credit limits increase rapidly early in life, growing by more than 400 percent between the ages of 20 and 30. Debt grows almost as fast, however, so credit utilization falls slowly throughout the life cycle, reaching 20 percent only by age 70. Individual credit utilization is extremely stable despite the large life-cycle, business cycle, and individual volatility of credit. Stable utilization means that consumer debt is very sensitive to changes in credit limits. Distinguishing between consumers who revolve debt and those who use credit cards only for payments, we find that for revolvers nearly 100 percent of an increase in credit limits eventually becomes an increase in debt.


JEL Classifications: D14, D91, E21