A recent report from the Urban Institute titled “Americans’ Debt Styles by Age and over Time” looks at five years of U.S. consumer credit data to gain a better understanding of our debt styles, how those styles differ for different age groups, and how those styles have evolved. While many patterns that emerged are not surprising, according to the report’s authors, Wei Li and Laurie Goodman, there were some unexpected findings.
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. Some of the findings from the report reveal new insights about American debt patterns.
Approximately 89% 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.
Nearly one-third of consumers (29%) with credit records don’t borrow at all; another 22% have no other debt other than credit card spending.
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.
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.
