Hong Kong Consumers Who Monitor their Credit Reports are 26% More Likely to Improve Credit Risk; Seven Times More Likely to Open New Accounts
New TransUnion study highlights impact of credit self-monitoring and its benefits to both consumers and lenders
High-risk Hong Kong consumers who self-monitor their credit reports—either online or via one of the recently released apps—are 26% more likely to improve their credit risk compared with consumers who do not monitor their own credit reports. These findings, unveiled today by TransUnion (NYSE:TRU), also determined that lower-risk consumers who self-monitor their credit are seven times more likely to open a new account in the month after they start monitoring.
“Strictly from a risk perspective, it is clear that consumers who monitor their credit reports and scores perform better in the ensuing months,” said Brendan le Grange, director of research and consulting for TransUnion Hong Kong, “We have also observed that continuing to monitor on an ongoing basis is a key to maintaining these benefits over time.”
To conduct the study, TransUnion observed 17,000 self-monitoring consumers between March and August 2016, as well as a control group of consumers similar in risk, age and balance profiles, but who did not monitor their credit. The CreditVision Score was used to calculate a consumer’s risk before and after subscription—the same score used in 95% of Hong Kong lending decisions.
Consumers self-monitor for many different reasons: those with poor credit may wish to understand how to improve, while those with a better track record may wish to confirm their credit eligibility prior to making a major purchase. Others may just want to ensure their credit report remains in good standing and contains no unexpected surprises. Many are aware that monitoring their credit report activity is a good way to guard themselves from becoming a victim of identity theft and/or being alerted to it quickly.
The study was designed to take these different motivations into account: the highest risk consumers were defined as “credit improvers” and tested for credit score improvement over time, while the remaining majority of consumers were either defined as “credit seekers” if they grew their available credit significantly, or as “credit managers” if they did not.
According to the study, 53% of “credit improvers” did in fact experience significant improvements in their credit scores in the three months post-subscription, compared to 42% for the control group. In fact, 48% of the “credit improvers” attained score increases of 40 points or more, a change large enough to potentially improve their ability to access new credit.
“Understanding their current credit situation is an important first step for consumers looking to take more control of their finances—which for many consumers, can also be a first step to achieving important life goals,” continued Le Grange.
Credit self-monitoring also benefits consumers who may be looking to apply for new credit to finance major purchases, such as homes, home furninishings and automobiles. Many consumers want to be informed about their credit picture before they apply for a new loan, which may be why lower-risk consumers who monitored their credit reports made six times as many credit inquiries that month compared to the control group, and opened seven times as many accounts in the next month.
“This is particularly interesting to lenders due the saturated Hong Kong credit market—where TransUnion’s Industry Insights Report showed that, on a year-over-year basis, the number of new credit cards originated has dropped in 5 of the last 6 quarters,” said Le Grange.
The self-monitoring consumers observed in the study also exhibited other characterisistics of interest to lenders, such as carrying a larger balance than average. “Consumers are clearly enagaged by the process,” Le Grange added, “opening a disproportinate amount of those new accounts with the financial institution that made the credit monitoring app available.”
Self-monitoring consumers benefit directly, too. The study found that they opened new loans with an average interest rate of 24% in the months prior to their subscription, and that this average rate fell to 19% immediately thereafter—on a typical personal loan, that would equate to a savings of between $500 and $700 a month.
“Ongoing credit monitoring should be an integral part of a consumer’s long-term financial health goals,” said Lawrence Lo, Director, Consumer Interactive at TransUnion Hong Kong. “Consumers who regularly monitor their credit understand their credit health and can maintain control over their finances. In doing so, they may be able to realize lower interest rates and better access to credit. More broadly, informed consumers are empowered to take the steps necessary to achieve their goals and build for their futures.”
For more information about the study, please click here.
About TransUnion (NYSE: TRU)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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