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Does getting a mortgage affect credit card use?

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  • Scott L. Fulford
  • Joanna Stavins

Abstract

Buying a house changes a household?s balance sheet by simultaneously reducing liquidity and introducing mortgage payments, which may leave the household more exposed to other shocks. We find that this change affects credit card use in two ways: A debt effect increases credit card spending, while a credit effect leads to higher credit limits. In the short run, a new mortgage acquisition has a robust and statistically significant positive effect on credit card utilization ? the fraction of a consumer?s credit card limit that is used ? of approximately 11 percentage points. Before the 2008 financial crisis, the credit effect exceeded the debt effect in the long run, pushing down long-term utilization. In our sample period after the financial crisis, the debt effect dominated in the long run, and credit card utilization rates rose upon the acquisition of a new mortgage, consistent with larger down payments leaving households more constrained.

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  • Scott L. Fulford & Joanna Stavins, 2019. "Does getting a mortgage affect credit card use?," Working Papers 19-8, Federal Reserve Bank of Boston.
    • Handle: RePEc:fip:fedbwp:19-8
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    References listed on IDEAS

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    1. Atif Mian & Amir Sufi, 2011. "House Prices, Home Equity-Based Borrowing, and the US Household Leverage Crisis," American Economic Review, American Economic Association, vol. 101(5), pages 2132-2156, August.
    2. Søren Leth-Petersen, 2010. "Intertemporal Consumption and Credit Constraints: Does Total Expenditure Respond to an Exogenous Shock to Credit?," American Economic Review, American Economic Association, vol. 100(3), pages 1080-1103, June.
    3. Benjamin J. Keys & Tomasz Piskorski & Amit Seru & Vincent Yao, 2014. "Mortgage Rates, Household Balance Sheets, and the Real Economy," NBER Working Papers 20561, National Bureau of Economic Research, Inc.
    4. Scholnick, Barry, 2009. "Credit card use after the final mortgage payment: does the magnitude of income shocks matter?," Working Paper Series 1142, European Central Bank.
    5. Claire Greene & Scott Schuh & Joanna Stavins, 2016. "The 2014 survey of consumer payment choice: summary results," Research Data Report 16-3, Federal Reserve Bank of Boston.
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    Cited by:

    1. Scott L. Fulford & Scott Schuh, 2023. "Revolving versus Convenience Use of Credit Cards: Evidence from U.S. Credit Bureau Data," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 55(7), pages 1667-1701, October.

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    More about this item

    Keywords

    credit cards; mortgage; credit card utilization; debt;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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