ABSTRACT
This paper investigates the impact of cardholder risk on the price of credit cards. We utilize two national representative surveys conducted in the USA, and an innovative matching procedure to study how the level of risk of cardholders along with card attributes affects APRs charged by issuer banks. The evidence presented in this paper suggests that high-risk consumers are charged lower APRs when longer term indicators of cardholder risk (FICO scores) are considered. Our findings are consistent with previous evidence which suggests that high-risk consumers search more intensively for low rates. More specifically, credit card markets comprising high-risk cardholders benefit from lower APRs than counterparts comprising low-risk consumers.
