Elastic Plastic: How Consumers Respond to Changes in Credit Card Limits and Rates

When a credit card company changes interest rates or increases the credit limit of its consumers, how do these consumers respond? The answers are far from predictable, as David B. Gross of the University of Chicago and Wharton’s Nicholas S. Souleles have found out. In a paper titled, “Consumer Response to Changes in Credit Supply: Evidence from Credit Card Data,” Gross and Souleles examine the effects of changes in the credit limits and interest rates. Their study found that people starting at near their credit limit respond most sharply to changes in credit limits.