Breaking Down The CFPB’s Consumer Credit Report

The consumer credit report is a CFPB study of the relationship between consumers’ credit scores and their applications for credit cards. For about the past half a decade, consumer advocates have sought to boost consumers’ awareness about their credit scores to give them more tools to stabilize their financial situations.

One piece of this effort occurred in 2014 when the Consumer Financial Protection Bureau encouraged the major credit card companies to provide their customers with freer access to credit score reports and educational materials on how they can impact their scores.

In an effort to judge the effectiveness of these campaigns, CFPB recently completed a study of when consumers are applying for credit cards, in relation where their credit score stands. The consumer credit report found a spike in credit card applications (or in some cases application to increase their credit card limit) shortly before consumers achieved their best credit score and also just before they hit their worst credit score.

In this article, we’ll hit a quick overview of the consumer credit report then dig in a little deeper in two follow-up posts. The second post will burrow more into the numbers while the third post will focus on the researchers’ conclusions about the study.

About the Consumer Credit Report Application Study

For this study, the researchers used the CFPB’s Consumer Credit Panel to review information from some 5 million de-identified consumers. They focused the research on consumers whose credit score fluctuated by more than 100 points from its maximum to its minimum, which turned out to be about two-thirds of the 5 million. The study spanned the years from 2009 to 2017, totaling 36 quarters. Consumers had to have a credit score for 29 of those quarters, so it included consumers with new credit scores and those with established credit scores.

The groups were further divided into those whose minimum credit score occurred before their maximum score and those whose maximum credit score occurred first. About twice as many consumers fell into the latter category, where their maximum score occurred before their minimum score. Keep in mind, because the figures studied began in 2009, it was on the heels of the recession and probably before the slow recovery began.

The two groups turned out to be pretty similar in their actions, however. Their average credit scores were 653 for the maximum first and 664 for minimum first; their top scores were 726.3 and 737.8; bottom scores were 557.8 and 578.1; and average age in 2009 were 42.9 and 41.8.

One stark difference was the average amount of time it took to go from maximum score to minimum score was 10.8 quarters versus 21.9 quarters to go from minimum to maximum. In other words, it takes nearly twice as long to build to a good credit score as it does to lose control of your credit score.

The Credit Card Application Trend

The researchers charted when general use credit card companies made a “hard inquiry” for a consumer’s credit score, which indicates an actual application for credit has been filed. Consumers who receive hundreds of credit card application in the mail every year should understand these offers are based on a qualifying credit score but do not actually trigger a “hard inquiry” on your credit score.

A “hard inquiry” also will be generated by consumers who are seeking a higher credit limit on an existing credit card, but estimates are these only figure in about 5 percent of inquiries, so for the purpose of this study researchers could not distinguish between the two types of inquiries, but the vast majority are for new credit cards.

Another difference notable between the two groups in the study was that those with the minimum score first had an average of 6.0 inquiries, while the maximum score first had 4.2 inquiries. This makes sense as you’re less likely to apply for a credit card as your financial situation is getting worse.

The similarity in the groups is that both had a spike in credit card applications two to three quarters before hitting their maximum or minimum credit score, then a sharp drop in the quarter after achieving maximum or minimum.

The researchers acknowledge further research is needed to fully understand these findings, but they felt there were three conclusions they could draw from the data:

  • Consumers do seem to be aware of their credit scores as they are timing their applications pretty consistently with the rise and fall of their credit scores.
  • Credit card applications themselves are likely contributing to the peaks and valleys as the process of opening a new credit line affects your credit score.
  • Credit card companies’ marketing efforts could be affecting the trend, as they are more likely to send applications when credit score is rising and less likely when credit score is declining.

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