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What kind of credit card user are you?

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Credit Sesame discusses how the American Bankers Association classifies you as credit card user.

As a credit card user, you probably think of yourself as, well, a credit card user. Either you use your credit cards or you don’t, right? Not so. The American Bankers Association (ABA) classifies you as one of three types of credit card user:

  • Revolver
  • Transactor
  • Dormant

The ABA’s labels are useful in understanding the differences in how people use their credit cards. The way revolvers, transactors and dormants use their credit cards impacts their long-term financial health.

What does it mean to be a revolver, transactor or dormant?

  • A revolver is somebody who regularly carries a credit card balance and rolls it over from month to month. Moving a credit card balance from one month to the next is what’s known as revolving credit use. These people aren’t just using their credit cards to pay for things, but also to borrow money for an extended period.
  • A transactor is somebody who uses their credit card throughout the month, but then pays the balance off in full by the end of the statement cycle. In this way, they are using their credit card for transactions but not as a means of long-term borrowing.
  • A dormant account holder is someone who has a credit card that they seldom if ever use. They’ve kept the account open, but haven’t used it in a long time.

You may recognize yourself in at least one of these categories. You may even be a mix of these different types of credit card users, depending on your behavior with different credit cards.

All three are completely valid ways of using a credit card. It just comes down to personal choice. However, knowing how each of these three categories may affect your wealth and credit score is important.

The cost of being a revolver

The ABA recently announced that the percentage of revolvers declined in the second quarter of 2022, and is now well below its pre-pandemic level. If you’re a revolver, it’s costing you money.

If you regularly carry a credit card balance, you have a lot of company. Total credit card debt outstanding in the U.S. has risen steadily over time, reaching a record $1.17 trillion dollars earlier this year, according to the Federal Reserve.

That means while most people are making payments on their credit cards to maintain their accounts, they aren’t paying enough to reduce their balances. In fact, the fact way balances have risen so much shows that many people charge more each month than the payments they make.

People who pay back less than they owe on their cards incur monthly interest charges. Those charges are getting more expensive, as the average interest rate on credit card balances has risen by about 2% this year.

That’s the cost of being a revolver.

Also, using a high proportion of your credit limit counts against your credit score. Typically, as your credit score goes down, the interest rate you pay goes up. That adds even more to the cost of being a revolver.

The benefit of being a transactor

Like a revolver, a transactor also makes regular use of a credit card. The difference is that transactors pay their balances off in full every month.

By doing this, they typically avoid interest charges. This allows them to have the convenience of using a credit card as a substitute for cash without having to pay interest charges. They may actually be getting paid to use their card, if it pays rewards on transactions.

On top of that, by using their credit cards regularly and paying them off in full, transactors are building a positive payment history. They are also keeping the amount of credit in use low. Both that payment history and maintaining a low balance help their credit scores.

In short, transactors can have all the benefits of credit card use without paying interest. The only thing to watch out for is that merchants are increasingly adding surcharges for paying by credit. However, for many transaction there often isn’t a good alternative.

Why its okay to be dormant – maybe

The third category consists of people who have a dormant credit card. That’s an account that’s still active, but hasn’t been used in a long time. This can have some benefits.

Two things that count positively towards credit score are using a low percentage of your available credit and having an account for a long time.

By keeping an account active even if you aren’t using it, you keep the amount of credit you have available higher. This lowers the percentage of available credit that you’re using, which helps your credit score.

In addition, by keeping an old account active your credit record shows a longer account history. That also helps your credit score.

So, even while a credit account is not in use, it could be helping your credit score.

There is one potential catch, though. If your credit card charges an annual fee, you have to continue to pay that fee for as long as the account is active, even if you aren’t actually using the card. In that case, the benefits of keeping the account open may not be worth that ongoing cost.

So what kind of credit card user are you?

If you’re dormant or a transactor your credit card usage probably is not costing anything. If you’re a revolver, you may like to rethink your credit card habits.

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Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

Richard Barrington
Financial analyst for Credit Sesame, Richard Barrington earned his Chartered Financial Analyst designation and worked for over thirty years in the financial industry. He graduated from St. John Fisher College and joined Manning & Napier Advisors. He worked his way up to become head of marketing and client service, an owner of the firm and a member of its governing executive committee. He left the investment business in 2006 to become a financial analyst and commentator with a focus on the impact of the economy on personal finances. In that role he has appeared on Fox Business News and NPR, and has been quoted by the Wall Street Journal, the New York Times, USA Today, CNBC and many other publications.

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