Credit Score Articles

Credit score a major factor in debit card usage

A new study has found that there is a close correlation between consumers' credit scores and how often they use their debit cards to make purchases, and how much they spend on them.

According to a study from MasterCard, which also cited third-party findings from Lightspeed Research, the lower a consumer's credit score is, the more likely they are to use their debit card with greater frequency every month.

The study found that "subprime" consumers - those with a credit score below 650 - use their debit cards to make purchases an average of 28 times per month, and spend a total of $860 doing so. This usage makes up 73 percent of all their card spending.

On the other hand, "superprime" borrowers, who have credit scores above 720, use their debit cards just 11 times per month to spend only $324 on average. They also use their credit card about as often as subprime borrowers use debit, 72 percent of the time.

Average consumers - those with credit scores between 650 and 720 - use their debit cards an intermediate amount, an average of 20 times per month, the study found. Those purchases totaled just over $600.

Despite the wide-ranging amount of usage over the three credit score bands, there have been increases across the board. The study found that between the fourth quarter of 2008 and the same period in 2009, debit use among subprime borrowers rose 10 percent, and 17 percent for prime consumers. Superprime Americans, meanwhile, used their debit accounts 12 percent more. The study said that these increases, however, did little to impact credit spending, and instead replaced the use of cash and checks by consumers.

Even when analyzed by income, MasterCard found that debit usage peaks with households who it described as "middle income," those making between $40,000 and $70,000 a year. Debit card usage was lower for consumers with both higher and lower income.

In recent years, as the economy got worse and delinquencies rose, credit card companies tightened lending restrictions, and effectively shut subprime borrowers out of their ability to obtain a line of credit. This new lending environment may be what has led consumers who fall into this category to rely on debit cards more often.