(Bloomberg) – Americans are back to borrowing more with credit cards. According to the most recent Federal Reserve data, they owe $952 billion, the biggest load of revolving consumer debt since 2009.
Part of the story is the same old story: Lots of cardholders still drag around debt, carrying over a balance every month and paying loads of interest. If offered a higher credit limit, many just can’t resist borrowing every extra cent, especially if they’re growing more confident about the economy. It’s tempting to think we shouldn’t be trusted with credit cards, that everyone should either pay in full every month or cut up the credit cards and use debit cards.
Sometimes, however, a credit card can come in handy–and not just when racking up rewards or buying a wider flatscreen. A new study from the National Bureau of Economic Research looked at job losses, examining how credit access affects the way Americans go about finding new jobs. It turns out that credit can often help jobseekers get back on their feet, especially those with lower income and fewer savings.
When workers lose their jobs, the study found, a higher credit limit allows them to take longer to find a new one. The study linked up an employment database with millions of TransUnion credit reports from 2001 to 2008. It showed that a credit limit increase equal to 10 percent of a person’s prior annual salary can translate into their spending as many as three weeks more looking for a job.
Longer unemployment might sound like a bad thing, but it’s often a mistake to jump at the first job opportunity because you’re desperate for money. When unemployed people had access to more credit, the study found, they were choosier. They ended up with better jobs a year later, both higher-paying and at larger, more productive companies.
It’s not really credit-card spending that allowed people to be pickier. It’s the fact that they knew that cash was available if they needed it, giving them confidence to hold out a little longer.
“The potential to borrow affects search decisions regardless if credit lines are actually drawn down,” wrote the study’s authors, Kyle Herkenhoff of the University of Minnesota, Gordon Phillips of Dartmouth College, and Ethan Cohen-Cole of consulting firm Econ-One.