The CFPB’s Consumer Credit Report: The Conclusions

We’ve review the consumer credit report to summarize the conclusions researches drew from this CFPB study. Consumers’ decisions on when to apply for a new credit card likely are dependent upon the individual consumer’s needs and thought patterns. And they appear to be taking their credit scores into account when making those decisions, according to a consumer credit report, a recent study from the Consumer Financial Protection Bureau.

After reviewing the CFPB’s consumer credit report, these are the conclusions the researchers drew from those numbers.

Catching Up with the Study

CFPB’s researchers looked at the data from some 5 million de-identified consumers and how often they applied for a new credit card compared to how their credit score stands. It focused on consumers whose credit score varied by more than 100 points between maximum and minimum, spanning the years 2009 to 2017. About two-thirds of the 5 million consumers fell into this category.

Researchers broke these down into two groups: those whose minimum credit score hit before their maximum, and those whose maximum score preceded the minimum. There were roughly twice as many consumers who went from maximum to minimum during the study period, not surprising given that it began in the wake of the great recession and the slow recovery period.

What it did find was a similarity in that consumers in both groups experience a spike in credit card application right before their reached their maximum and minimum credit scores and dropped off quickly after their peaks.

The Consumer Credit Report Conclusions

Researchers admitted this is only the beginning of the consumer credit report but they still drew three conclusions from the results of the study:

Consumers appear to be basing decisions on their credit scores. Part of the impetus for this study was that in 2014, CFPB began encouraging credit card companies and other financial services companies to provide consumer free and easy access to their credit scores.

Access to their credit scores and educational materials about their credit history is expected add to consumers’ toolbox for improving their financial situation by making better credit decisions.

If consumers are aware of their credit score, they will recognize when they have the ability to apply for credit cards with a better interest rate.

The results of the study for consumers who hit their maximum and minimum credit scores before and after 2014 showed similar trends, but the peaks and troughs were more clearly defined after 2014, indicating consumers were more aware of where their credit scores stood when they applied for new credit cards.

The effect of applying for credit may affect future decisions. The consumer credit reporting bureaus tend to reduce credit score when consumers have a “hard inquiry” for a new line of credit and especially when consumers open that new line of credit. Scores will fall even more if consumers are using the credit card and carrying balances, the higher the worse.

This could result in consumers’ credit scores topping out as they apply for and possibly use their new credit cards.

Conversely, as consumers near the bottom of their credit score journey, they stop applying for new credit, allowing their score to begin climbing again.

A further look at successful applications for credit cards showed a similar trend to the data on applications for credit cards.

Lastly, credit card companies’ marketing efforts may have an effect. Consumers with good and even improving credit scores tend to get barraged with offers from the credit card companies.

As the scores get higher, consumers are considered a better risk for credit, so they naturally are offered better interest rates. This could be spurring consumers to make the decision to apply for new credit cards to take advantage of those lower interest rates.

On the other hand, consumers with declining credit scores are likely to see fewer of these offers showing up in their mailboxes, and when they do, they will reflect that rising interest rate. These consumers either won’t have the opportunity to apply or will be scared off by the rising interest rates, allowing their credit scores to rebound.

The researchers noted that greater swings in those consumers with very low maximum and minimum peaks would be reflective of this explanation. Whereas, the application trend from those whose maximum and minimum fall into the higher range, tend to look more like those consumers with stable credit scores, so they are not as enticed by new offers.

The researchers involved in the consumer credit report admit they need to do more research on how credit scores are affecting when and why consumers apply for new credit.

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