Four in 10 Hong Kong Credit Card Holders Uncertain About Importance of Paying More than Minimum Due

New research across global markets from TransUnion (NYSE:TRU) has found that those consumers who make payments in excess of the minimum due are consistently less risky across multiple credit products.

TransUnion’s research, which analyzed consumers in Hong Kong, Canada and the United States, determined that the more consumers pay over their minimum payment due for credit cards or other revolving lines of credit, the less likely they are to go delinquent. Such findings derived from trended data could help lenders better mitigate account risks and maximize consumer opportunities.

“Our research shows that consumers across the globe – be it in Asia or North American – can benefit from paying more than the minimum due,” said Ezra Becker, senior vice president and head of TransUnion’s global research operations. “This may sound intuitive—consumers who are able to pay more usually have more liquidity and therefore are less likely to miss payments. But it is the quantification of this intuition that is important. This is an insight one can only derive from trended data that includes actual payment data, and it can be an important variable for lenders to use when assessing the risk of their credit portfolios.”

According to a new TransUnion survey of 1,000 consumers in Hong Kong, 88% of respondents indicated that they more often pay a greater amount than their minimum due on their revolving debts each month. Yet a significant number (more than 40%) are uncertain about the importance or benefits of paying off above the minimum balance.

Around the World: How Do Consumers Pay Off Their Credit Cards?

“Leveraging trended data and the insights derived from it could really help Hong Kong lenders better identify borrower risk trends and ultimately create greater credit access for consumers. This can only happen when financial institutions utilize trended data and report payment data to credit bureaus,” said Samuel Ho, CEO, TransUnion Hong Kong. “When lenders provide this information and can access it broadly across the consumer wallet, it allows them to better tailor their products to consumer performance, which builds better loan relationships and helps everyone in the long run.”

Payment Data Good Predictor of Delinquency

TransUnion utilized its Total Payment Ratio (TPR) metric to identify the correlation between payment amount and delinquency across multiple products and regions. TPR is calculated by dividing a consumer's total monthly credit payments by the total minimum due on all of the consumer's credit products. The higher the TPR, the less likely the consumer will fall behind on payments.

For instance, a person making $400 in payments on three credit cards when the aggregate minimum due on those cards was $200 would have a TPR of 2.0. A person making $1,200 in payments with an aggregate minimum due of $200 would have a TPR of 6.0. TransUnion used this metric to analyze how credit users performed on various loan types.

The correlation with delinquency was consistent for markets as far ranging as Canada and Hong Kong. For instance, serious credit card delinquency rates (90 days or more past due, or “90+ DPD”) in Hong Kong dropped substantially for all consumer risk types as TPR increased—even when controlling for traditional risk scores.

Credit Card Serious Delinquency Rates (90+ DPD) – Hong Kong

The study further confirmed that payment behavior on revolving debt does impact performance on other credit products, such as auto loans.

Auto Loan Serious Delinquency Rates (90+ DPD) – Canada

"Our study confirmed that as TPR increased, delinquency rates declined for credit cards and auto loans in these varying markets,” added Becker. “This is a powerful new metric that adds value beyond the traditional credit score for evaluating risk.”

Trended Data Leads to More Consumer Benefits

New insights derived from TPR are only achievable when trended data are added to a consumer credit report. TransUnion launched CreditVision in Hong Kong to enhance lending and marketing decisions by leveraging dynamic data to see an expanded view of each consumer’s credit profile.

Whereas a traditional credit report offers a glimpse of a consumer at a snapshot in time, trended data assets leverage up to 24 months of historical information. For example, while a traditional credit report may tell you a consumer has HKD$25,000 in credit card debt, one using trended data would show you whether they have built up or paid down that balance over time.

Previous TransUnion research in the United States found that it is likely such data will benefit more consumers. Compared to the use of a traditional risk score, the use of a CreditVision score could increase the percentage of consumers in the Super Prime risk category from 12% to 21%. Consumers in this risk group are typically eligible for better rates and terms on credit products.

"Our findings, combined with the increased use of trended data, are good news for Hong Kong consumers, particularly those who make larger than required payments on their debts each month,” said Samuel Ho. “Even if they can't pay the full balance, they may now find that lenders view them in a more positive light depending on the amount they do pay. We encourage the use of trended data from CreditVision and the reporting of payment behavior to ensure both lenders and consumers can benefit from these newly available insights.”

For more information about the study and TransUnion’s CreditVision data, please visit (https://www.transunion.hk/PaymentStudy).

About the Consumer Survey in Hong Kong

In partnership with Weber Shandwick and Lieberman Research Worldwide, TransUnion launched a consumer survey in Hong Kong. The online omnibus study is conducted once a week among an Internet representative sample of adults 18-64 years old in Hong Kong. This survey was live on December 9-14, 2016. This report presents the findings of a survey conducted among a sample of 1,000 adults comprising 541 men and 459 women 18-64 years of age. Responses from four per cent of respondents who do not currently own a credit card were disqualified from the survey. Completed interviews are weighted by two variables: age and sex to ensure reliable and accurate representation of the total Hong Kong population, 18-64 years of age. Respondents for this survey were selected from among those who have volunteered to participate in online surveys and polls. Because the sample is based on those who initially self-selected for participation, no estimates of sampling error can be calculated.