Who Makes Credit Card Mistakes?

We document that not all individuals who pay penalty fees on their credit cards (e.g. for not paying the minimum monthly payment, or for exceeding their credit limit) do so because they don’t have enough money. In fact, a sizable proportion of those who incur credit card penalty fees do have enough money in their deposit accounts, and so could have avoided those penalties. In other words these penalties are incurred by mistake, caused by the inattention of individuals to their credit card payments and expenditures. Individuals who make such mistakes can be very attractive to the banks, because while they pay the penalty fees, mistakes caused by inattention do not necessarily signal an increased risk of future credit card default. Using a unique database of more than one million data points we show that individuals who make these kinds of unnecessary credit card mistakes are poorer. In particular individuals who make these mistakes (1) live in areas with more renters than owners, (2) receive a greater proportion of income from government sources such as unemployment insurance and government pensions and (3) receive smaller amounts from the ownership of businesses and other investments.