A bare-bones model of precautionary savings and credit-card borrowing, lending, and default, is constructed to confront facts on contract terms, usage, and performance of anonymized individual credit card accounts. Accounts are distinguished by income and creditworthiness of the account holder at the time of origination of the account. It is found that contract interest rates decline with creditworthiness and income while the credit-limit-to-income (at origination) ratios decline with income but rise with creditworthiness. Utilization rates and delinquency rates decline sharply with creditworthiness and income. If individuals differ by discount factors and default costs, the model can account for almost all of these patterns. The model underpredicts the interest rate offered to relatively creditworthy borrowers but does predicts large spreads between interest rates and default frequencies, as observed, despite modest monopoly power of card companies.
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