The CFPB’s Consumer Credit Report: Inside The Numbers

The consumer credit report, a recent study by the Consumer Financial Protection Bureau found that consumers tend to apply for more credit cards right before they reach their top credit score, but maybe more surprisingly, those whose credit score is in decline also are more likely to apply for new credit just before they bottom out.

We’d like to explain a little more about the numbers revealed by the consumer credit report.

A Quick Recap of the Consumer Credit Report

In the consumer credit report, the CFPB studied data on 5 million de-identified consumers over the 36 quarters between 2009 and 2017. Consumers needed to have a credit score for at least 29 months to be included.

Researchers in the consumer credit report zeroed in on the nearly two-thirds of those consumers whose maximum and minimum credit scores varied by more than 100 points during the study. These consumers were further divided into those who reached their minimum credit score before their maximum score and those whose maximum score occurred first. The number who had their maximum score first was about twice the number whose minimum occurred first. Given that the study dates come on the heels of the great recession and the slow recovery, that data isn’t too surprising.While there were some differences in the two groups, they were surprisingly similar in their average credit scores (mid-600s), maximum credit scores (not quite mid-700s) and minimum credit scores (mid- to upper 500s). Both groups also hit a spike in credit card applications just before hitting the maximum or minimum, though as you’d expect the group heading toward maximum had a higher spike.

One stark number that jumps out though is the average number of quarters for the maximum to minimum score was 10.8 quarters while those going from minimum to maximum took 21.9 quarters, showing it’s twice as hard to build toward good credit as it is to slip into bad credit.

Digging Deeper into the Numbers

Looking first at those who were building toward their maximum credit score, their number of credit card applications tended to climb pretty steady until just about a year before they hit their maximum score, when it spiked more sharply then stayed pretty high until dropping off rapidly in the quarters after they hit their maximum score. That peak at four quarters out showed 0.09 applications per person then fluctuated between 0.06 and 0.08 applications in the following three quarters.

A breakdown of the numbers by the maximum score shows that those who topped out at more than 780 along with those who topped out between 720 and 780 were the ones who peaked four quarters before reaching their maximum and then dipped back down before reaching the maximum. The next group, who topped out between 660 and 720, peaked one quarter before reaching their maximum, and the other groups, who topped out at 600 to 660 and less than 600, both peaked on the quarter they hit maximum.

Following another little mini-peak in the quarter after reaching their maximum, these groups and the overall trend then slid to about half of the peak number and remained relatively stable after that.

For the group who were sliding from their maximum score to their minimum score, they too saw a steady increase in the 20 quarters leading to their minimum score but took a mini-spike in the third and second quarters before hitting their minimum score. That spike was to 0.06 applications per person, still below the spike at the maximum end. Their plunge was more defined as it dropped quickly to less than 0.03 applications per person in the quarter after they reached bottom. As you can imagine, it’s almost impossible for those with very low credit scores to receive a new credit card, so it makes sense they would be applying less often.

Knowledge of Credit Scores

One of the goals of the consumer credit report was to see if efforts in the past five years to provide free credit scores to consumers was succeeding in educating consumers and making them wiser credit shoppers. In 2014, CFPB sent letters to credit card companies encouraging them to provide free credit score reports to their customers along with educational materials about how to use and improve their scores.

The study did find that the trend was relatively consistent for those who hit their maximum or minimum score before 2014, but the peaks and troughs were noticeably more subdued. That finding would indicate consumers are making their decisions now based more on knowledge about their credit scores.

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