Now that the holidays are over, the stress of higher credit card charges arrives with the bills. NerdWallet estimates that the average U.S. household had $14,478.78 in credit card debt in 2012 and that 46.7% of U.S. households carry credit card debt. According to CreditCards.com, 2.93% of consumers are delinquent on their credit cards. Credit card usage has dropped in recent years as some consumers are concerned about developing debt they cannot pay. Who carries debt and what credit cards they use varies across consumer types.
This article explores the types of consumers who charge a lot on their credit cards each month versus those who don’t. Also, it compares the types of consumers who carry American Express and Discover cards.
Credit card debt
Americans hold more than 600 million credit cards, according to CreditCards.com. This averages out to 3.5 cards per person. Many consumers use their cards quite avidly, charging everyday purchases such as food and gas. Others use the cards more sparingly, only charging major purchases that they pay off over time.
The type of consumers who charge a small amount of $111 or less per month on their credit cards varies quite significantly compared to those who charge $700 per month or more. Not only are they different types of consumers, they live in different parts of the U.S.
There is no dominant area of consumers that charge just $111 or less per month.
Consumers who charge $700 per month or more on credit cards tend to live on the Eastern Seaboard and along the California coast. Consumers who are least likely to charge $700 or more per month live primarily in the South.
Which types of consumers charge very little or a lot on their credit card? Esri has developed the Tapestry Segmentation system that classifies U.S. residential neighborhoods into 65 unique market segments based on socioeconomic and demographic characteristics.
Consumers that charge $111 or less per month are most likely to be in neighborhoods dominated by Tapestry’s Rustbelt Retirees segment. These residents are 1.5 times more likely than the average American to charge $111 or less per month on their credit cards. Rustbelt Retirees neighborhoods are the foundation of older, industrial cities in states bordering the Great Lakes. Most residents are married couples with no children or singles who live alone. They own and live in modest single-family houses. Although many are still working, more than 40% receive Social Security.
Neighborhoods with residents least likely to charge $111 or less per month are City Commons, NeWest Residents and Top Rung. These residents are half as likely as the average American to charge $111 or less per month on their credit cards. Income, wealth and life stage vary among residents of these neighborhoods. City Commons neighborhoods are primarily in cities of large Southern and Midwestern metropolitan areas. Residents of these neighborhoods are young, single or single parents, and most likely, unemployed or work part-time. NeWest Residents have strong family‐oriented lifestyles and are found primarily in major western and southern cities with the largest concentrations in California and Texas. Conversely, Top Rung is Tapestry’s wealthiest consumer segment. These highly-educated residents are married couples in their peak earning years, with and without children. They can afford to buy anything and shop frequently.
Consumers that charge $700 or more per month most likely live in neighborhoods dominated by Connoisseurs, Military Proximity, Silver and Gold, Suburban Splendor and Top Rung. Residents are two times more likely than the average American to charge $700 or more per month on their credit cards. Affluence is the commonality for all of these segments except Military Proximity. Differences occur in location, age and family types. Connoisseurs, Suburban Splendor and Top Rung residents are usually in their 40s, well-educated, hold professional or management positions, and live in large, luxurious single-family homes in established suburban neighborhoods. Military Proximity residents are young, married and just beginning parenthood. Median household income is low for these residents on active duty or civilians employed on military bases.
Neighborhoods with residents least likely to charge $700 or more per month are Home Town and NeWest Residents. These residents are one-fourth as likely as the average American to charge $700 or more per month on their credit cards. Home Town neighborhoods are a mix of singles and families that live in low-density communities and are content to stay close to home. NeWest Residents have strong family‐oriented lifestyles and are found primarily in major Western and Southern cities, with the largest concentrations in California and Texas. They pay for purchases with cash; few have or use credit cards.
Types of credit cards
Most Americans have credit cards. The most popular credit card is Visa. There were 234.1 million Visa credit cards (vs. debit cards) in circulation in 2011, according to the Nilson Report. MasterCard is also very popular, with 175.7 million MasterCard credit cards in circulation. The types and locations of consumers that hold Visa and MasterCards are very similar because so many cards are in circulation. Fewer Americans hold American Express and Discover cards than Visa and MasterCards. There is a striking difference in the type and locations of AmEx and Discover cardholders. According to the Nilson Report, there are 50.6 million American Express credit cards in circulation and 58.7 million Discover Cards. Who are the Americans who hold American Express and Discover cards? Where do they live?
American Express cardholders most likely live along the Eastern Seaboard and the California coastline. This is in contrast to Discover Card holders who most likely live in the Midwest. American Express cardholders are least likely to live in the South. Discover Card holders are also least likely to live in the South or the West.
Residents of Connoisseurs and Top Rung neighborhoods are most likely — 2.5 times more likely than average — to have an American Express card. Residents of these two Tapestry segments are wealthy and well-educated. Residents of Connoisseurs neighborhoods tend to be older, affluent and live in established, slow-growing areas in densely populated city centers. In their peak earning years, most Top Rung residents are married with children.
Residents of Modest Income Homes and Southern Satellites neighborhoods are one-fourth as likely to have an American Express card. Modest Income Homes neighborhoods are found primarily in the older suburbs of Southern metropolitan areas. Singles, single parents and other family types live in single-family housing, including many adult children who still live at home. Southern Satellites neighborhoods are comprised of married-couple families with limited educations. They work in the manufacturing and service industries.
Discover Card holders have a very different profile from American Express cardholders. Residents in neighborhoods dominated by Prairie Living, Rustbelt Retirees, and Silver and Gold Tapestry segments are most likely — 1.5 times — to have a Discover Card. Many Prairie Living residents live on small, family‐owned farms in the Midwest. Rustbelt Retirees are a mix of settled, married‐couple families, single parents and singles in neighborhoods of older, industrial cities in states bordering the Great Lakes. Silver and Gold residents are wealthy seniors most of whom have retired from professional careers and moved to sunny climates.
NeWest Residents are least likely to hold a Discover Card. They are one-fourth as likely as the average American to hold a Discover Card. Residents of these neighborhoods found in California and Texas lead a strong, family-oriented lifestyle. They prefer to pay for purchases in cash; very few own or use a credit card.
Why does this matter?
Consumers handle credit card debt in many different ways. Some consumers accumulate significant debt on their cards, and hope to pay it off over time. Others pay off charges monthly. Understanding how different consumers groups use credit cards and the amount they pay can help credit card companies and retailers to more effectively market and issue their own credit cards. People in different parts of the nation have very different methods of handling credit — and take advantage of different benefits such as miles, discounts or points offered by various card types. Gaining a deeper understanding of consumer preferences can help card companies to improve their marketing strategies, increase market share — and ideally increase profits over time.
Pam Allison is a digital media, marketing strategist and location intelligence consultant. You can visit her blog at www.pamallison.com.