Credit Lines Become the New Household Liquidity Buffer

Consumers are watching their spending more closely, but they are not giving up the financial leeway that credit can provide.

That is the larger trend emerging from recent PYMNTS Intelligence research, and new Federal Reserve Bank of New York data adds another piece of evidence.

The share of consumers who applied for credit during the previous 12 months reached 46.1% in June, up from 44.4% in February and the highest level since October 2021, per the central bank reflecting June’s trends. The rejection rate increased slightly to 16.1%, but remained well below the 23.1% recorded a year earlier.

The numbers fit with a consumer picture PYMNTS Intelligence has been documenting: Spending decisions have become more measured, while access to credit and multiple ways to pay remain important.

The June PYMNTS Consumer Expectations Index found that its Macro and Buying Climate Subindex remained below the neutral 50 level throughout the year. Consumers have also become less positive about their current finances and the manageability of their debt since December.

Yet that caution has not pushed consumers away from cards. Separate PYMNTS Intelligence found that 66% of millennials used credit cards for retail purchases during the previous 12 months, close behind the 70% who used debit cards.

The pattern suggests that consumers are making distinctions between spending more and having more ways to fund spending. Credit can provide additional purchasing capacity, but it also gives consumers control over when cash leaves their accounts. For those who pay their statement balance in full, cards can provide that timing flexibility without revolving interest.

Consumers Match Payment Methods to the Purchase

Millennials provide a particularly useful example of the flexibility tied to day to day transactions.

In stores, debit accounts for roughly 43% to 47% of millennial transactions and credit for another 25% to 27%. Digital wallet balances account for 10% to 14%, while BNPL represents about 2%.

The Fed findings add weight to that interpretation. Even as actual applications increased, consumers in June reported somewhat lower expectations of applying over the next year for new credit cards, auto loans, higher card limits and mortgage refinancing than they did in February. In other words, the latest increase in applications does not come with evidence of consumers preparing to pursue every form of available borrowing.

There is also an economic incentive to use existing credit selectively. We’ve found that 67% of millennials who noticed payment-method rewards or cash-back offers redeemed them. Credit cards can also provide fraud and dispute protections.

The Fed data also raise a question about what happens after consumers seek additional credit. Application rates can move well before corresponding changes appear in balances or spending, making them an early measure of household financial intentions rather than a direct measure of borrowing. The next test will be whether the increase produces higher revolving balances or whether consumers continue the more restrained spending patterns that PYMNTS Intelligence has documented.

Consumers remain guarded about spending and household finances, but they continue to value access to credit and use cards extensively. For many households, caution and credit access are operating together. The ability to choose when credit makes financial sense underscores why access to it remains valuable.