15% of credit card holders who revolve balances do so for 2 years or more, bureau ‘Data Point’ report shows

Two-thirds of actively used credit card accounts carry a revolving balance, with balances revolved continuously for about 10 months, according to a “Data Point” report issued by the research unit of the Consumer Financial Protection Bureau (CFPB).

The bureau’s Office of Research report looks at patterns of revolving and repayment of credit card accounts in the United States and examines how often balances are revolved on an account, or borrowed, how long balances are revolved, and how regularly they are paid down.

Sustained Debt Episodes
From the report: The left panel shows the distribution of sustained debt episode lengths among revolvers; the survival rate is the percent of episodes that last at least a given number of months. The right panel plots the percent of surviving episodes that end in a given month.

The report showed that 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, and about 15% revolve 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, the bureau report says.

The revolving patterns identified in the report remained fairly stable over time, even though the years covered by the period of analysis were marked by the Great Recession, the subsequent recovery, and the passing of the Credit Card Accountability Responsibility and Disclosure (CARD) Act, the report says.

At any point in time, nearly half of credit card accounts are inactive, the report says. Among active accounts, two of every three are revolvers. Further, transitions in and out of credit card debt are somewhat rare, occurring among only in 1 in 10 accounts each month.

The study also examined revolving patterns across accounts with differing default risk, as measured by their current credit score. Accounts are separated into four risk categories: (1) Deep-Subprime, with credit scores below 620 (2) Core-Subprime, with credit scores between 620 and 660 (3) Core-Prime, with credit scores between 660 and 720 (4) Super-Prime, with credit scores greater than 720.

Among accounts held by Deep-Subprime borrowers, the vast majority, or about 85%, revolve.

“Among the lowest risk accounts, the Super-Prime segment, the propensity to revolve is substantially less. For example, active accounts whose associated cardholders have credit scores greater than 800 are 2.7 times less likely to revolve in a given month than an average account,” the report states. “Accounts belonging to consumers with high credit scores, e.g. in the Super-Prime category, are also substantially more likely to be unused or to be transitioners relative to the average. Still, the majority of active accounts with credit score greater than 660 carry revolving balances.”

Regional differences were also identified. “High rates of revolving are heavily concentrated in the Southern states, while lower revolving rates are apparent in the West and Northwest. As compared to the Northwest, revolving rates in the South are up to 50 percent higher,” the report states. “Moreover, these patterns are consistent for prime and subprime revolvers, suggesting that disparities in revolving rates across states are not well explained by differences in consumer default risk across states.”

Data Point: Credit Card Revolvers (July 2019)

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