IDEAS home Printed from https://ideas.repec.org/a/taf/eurjfi/v20y2014i10p892-914.html
   My bibliography  Save this article

Credit card interest rates and risk: new evidence from US survey data

Author

Listed:
  • José Liñ ares-Zegarra
  • John O.S. Wilson

Abstract

This study uses survey data and instrumental variables' methods to assess whether in the USA the prices of credit cards (annual percentage rates, APRs) reflect the short- and long-term risks of cardholders (measured as unpaid credit card debt in the previous year, outstanding debt and Fair Issac Corporation score). We find a negative relationship between APRs and long-term risk. This effect is pronounced for sub-prime cardholders. This suggests that higher risk consumers shop around more intensively for credit cards offering the best terms and conditions. However, under stressed economic conditions, issuer banks increase APRs to account for short-term risk. Credit card characteristics, including network affiliation and issuer brand, play an important role in the pricing decisions of issuer banks.

Suggested Citation

  • José Liñ ares-Zegarra & John O.S. Wilson, 2014. "Credit card interest rates and risk: new evidence from US survey data," The European Journal of Finance, Taylor & Francis Journals, vol. 20(10), pages 892-914, October.
    • Handle: RePEc:taf:eurjfi:v:20:y:2014:i:10:p:892-914
    DOI: 10.1080/1351847X.2013.839461
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/1351847X.2013.839461
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/1351847X.2013.839461?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Dou, Yiwei & Li, Geng & Ronen, Joshua, 2024. "Does the CARD Act affect price responsiveness? Evidence from credit card solicitations," Journal of Banking & Finance, Elsevier, vol. 164(C).
    2. Cash, Alyxandra & Tsai, Hui-Ju, 2018. "Readability of the credit card agreements and financial charges," Finance Research Letters, Elsevier, vol. 24(C), pages 145-150.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:eurjfi:v:20:y:2014:i:10:p:892-914. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/REJF20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.