Introductory Credit Card Offers and Balance Switching Behavior of Cardholders

Tufan Ekici, Lucia Dunn and Tae Hyung Kim

Chapter Chapter 7 in Household Credit Usage, 2007, pp 117-131 from Palgrave Macmillan

Abstract: Abstract American consumers carry over $800 billion in unpaid credit card balances.1 With several thousand banks issuing credit cards today, the effort to lure these cardholders has become increasingly competitive. One of the most common business practices in this industry is the use of the introductory offer with a “teaser” interest rate below the going market rate for a fixed period of time. Frequently the low-rate offers will be connected to a transfer of balances from another account. The phenomenon of introductory rates and balance switching has become very important in this industry, and it has been estimated that around 5 billion direct solicitations go out annually, almost 4 solicitations per month per American household.2 This aggressive marketing behavior by banks is credited with increasing competition in the credit card market and the drop in average interest rates that occurred throughout the 1990s. In principle, a strategic consumer can avoid paying high interest rates by taking advantage of these offers. However, not all consumers revolving on credit cards are taking these introductory offers, and it is important to understand the behavior involved in this decision.

Keywords: Interest Rate; Credit Card; Risk Type; Convenience User; Switching Regression Model (search for similar items in EconPapers)
Date: 2007
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-60891-7_7

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DOI: 10.1057/9780230608917_7

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