TransUnion Study Finds Consumers Applying for a Mortgage Up to Three Times as Likely to Open New Credit Cards and Auto Loans
A new TransUnion (NYSE: TRU) study found that consumers applying for a new mortgage are on average two to three times more likely to open a new auto loan or credit card account over the next 12 months. In fact, many of these consumers open these accounts as soon as one month after their existing mortgage payoff.
The findings were released today at TransUnion’s Financial Services Summit in Chicago, attended by over 300 financial executives from across the globe. TransUnion’s study focused on mortgage applicants in the prime or better risk tiers* with an existing mortgage—those who are likely moving or refinancing.
“Our research found that consumers either purchasing new homes or re-financing their mortgage loans are far more likely to open a new auto loan or credit card soon after this major life event, many within one month. This finding is important, both because it quantitatively confirms the conventional wisdom and because it illustrates how necessary it is to look across products to get the full picture of consumer credit behavior.”
The study found that prime or better mortgage applicants on average are over 50% as likely to open a new credit card over the next 12 months following a mortgage inquiry compared to the overall population. These same consumers can be up to three times as likely to open a new auto loan in that same 12 month period.
Likelihood of Prime or Better Consumers with a Mortgage Inquiry
to Open the Following Accounts Over the Next 12 Months
Consumers with a Mortgage Inquiry
% of Consumers Who Open a Credit Card
% of Consumers Who Open an Auto Loan
The study also found that average daily credit card originations for consumers who moved into new homes were 54% higher 30 days after paying off a mortgage compared to 30 days prior. Average daily auto originations were 84% higher in that same timeframe. Nearly identical credit card and auto origination trends were observed for consumers who refinanced an existing mortgage.
“Clearly consumers who are planning to move or refinance their mortgage wait until after that event to seek new credit—but once that new mortgage event occurs, their demand far outstrips the overall population. This information is particularly valuable for lenders who are seeking credit-active consumers with higher demand for new credit cards and auto loans; this population is much more likely to respond to new offers, making them an attractive segment that lenders can now identify,” added Becker.
Credit Card Spend Surprisingly Rises Prior to Mortgage Closing
According to TransUnion’s research, for existing mortgage borrowers who move or refinance, 71% of all mortgage inquiries occur between 30 and 90 days prior to existing mortgage payoff and new mortgage origination. In this timeframe, consumers who are preparing to originate a new mortgage change their credit card spending and balance behaviors.
Consumers significantly increase credit card spend—at a rate of two to three times—and begin building balances in the months prior to mortgage payoff and new mortgage originations, not after. Contrary to popular belief, the study also found that consumers increase credit card spending—up to three times higher than levels six months earlier—in the month prior to paying off their existing mortgages.
“A longheld assumption among lenders is that new mortgage applicants spend less on their credit cards prior to their mortgage closing event – either to ensure their credit picture does not change or simply because they anticipate spending more once they move into their new home. Our research indicates that millions of consumers actually increase their card spending in the months before the new mortgage origination. Whether it’s to purchase furnishings or make updates to their existing property, many consumers who move increase their spending before moving into their new residence.”
Monthly Credit Card Spending Trends:
How Much Consumers Spend 1 Month Prior to Payoff Compared to 6 Months Prior to Payoff
Average Increase in Monthly Card Spend
Those Consumers Who Are Moving
Those Consumers Who are Refinancing
General Purpose Credit Cards
1.1 - 1.8X
1.7 – 3.0X
Retail / Private Label Cards
1.4 – 1.7X
1.6 – 2.4X
“Card spending increases are even greater for mortgage borrowers who refinance. These consumers may be anticipating lower mortgage payments, and take advantage of the greater available cash flow by increasing card spending in the months before their refinancing. They may benefit from increased credit limits on their cards. Lenders can take advantage of these insights by identifying existing cardholders with mortgage inquiries for proactive credit line increases,” added Wise.
TransUnion’s study included 16.7 million consumers who paid-off their mortgages and moved with new mortgages or refinanced their existing mortgages between Q1 2013 and Q2 2015. The study observed consumers in the prime or better risk tiers, who make up the large majority of the mortgage-seeking population. In fact, 89% of consumers who took on a new mortgage to move into a new home belonged to these risk tiers. Approximately 85% of consumers who refinanced their mortgage loans belonged to the prime or better risk tiers.
For more insights on TransUnion’s study and additional information on how lenders can use this information, please visit http://www.transunioninsights.com/mortgageimpact.
*The VantageScore © 3.0 risk ranges reviewed in the study were for prime or better (scores of 661+). VantageScore risk tier ranges are as follows: Non-prime = 300–660; Prime = 661–720; Prime plus = 721–780; Super prime = 781-850.
Information is a powerful thing. At TransUnion, we realize that. We are dedicated to finding innovative ways information can be used to help individuals make better and smarter decisions. We help uncover unique stories, trends and insights behind each data point, using historical information as well as alternative data sources. This allows a variety of markets and businesses to better manage risk and consumers to better manage their credit, personal information and identity. Today, TransUnion has a global presence in more than 30 countries and a leading presence in several international markets across North America, Africa, Latin America and Asia. Through the power of information, TransUnion is working to build stronger economies and families and safer communities worldwide.
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