The blog of the Urban Institute
November 15, 2015

Six new insights about Americans’ borrowing habits

November 16, 2015

Americans borrow money to finance homes, cars, consumer products, and college educations. Borrowing at the right time for the right purpose can put families on the path to financial stability, but going into debt can also create financial peril. To understand more about how Americans use debt throughout their lifetime, we recently examined the credit records over a five-year period on a random sample of more than 5 million consumers. Six findings from our report reveal new insights about American debt patterns:

  1. Approximately 89 percent of consumers with credit records fall into one of six debt categories (in order of popularity):
    • They have no debt at all;
    • They borrow via credit cards only;
    • They have only mortgage debt;
    • They have only an auto loan;
    • They have an auto loan and mortgage debt; or
    • They have only a student loan.
  2. Nearly one-third of consumers (29 percent) with credit records don’t borrow at all; another 22 percent have no other debt other than credit card spending.
  3. Consumers without debt have much lower credit scores than consumers with debt. These consumers may not have the credit record necessary to obtain debt, rather than a lack of desire to borrow. This also suggests a feedback loop: those who receive credit are able to use it to build a credit record. This fact highlights the importance and difficulty of getting that first foot onto the credit ladder.
  4. Auto debt lowers credit scores. Consumers of the same age group who have auto debt in combination with any other type of debt generally have lower credit scores than those who do not have auto debt but do have other debt. The data give no insight as to why having a car loan appears to bring credit scores down, but this is in interesting point worthy of further investigation.
  5. Younger borrowers who have a mortgage and a student loan have higher credit scores than older borrowers with a mortgage and a student loan. One possible explanation for this: because mortgage debt is relatively uncommon for younger borrowers (those in their 20s and early 30s) perhaps those who have mortgages at this age have higher incomes and better credit scores in general.
  6. Borrowers who hold only one type of debt generally hold less of it than those who hold a combination. Also, borrowers who hold more than one type of debt tend to hold more of each type then those who hold just one type. This pattern could be because once consumers are able to borrow money for more than one purpose, they are more willing and able to borrow more money for everything.

In the coming months, we’ll continue to explore this vast data set and share insights on how to better manage debt in America.

In this June 22, 2008 file photo, unsold 2008 Liberty sports-utility vehicles sit at a Chrysler-Jeep dealership in the southeast Denver suburb of Centennial, Colorado. Photo by David Zalubowski/AP

