For bankcard and auto lenders looking to make offers to consumers, timing is everything. Make an offer too early, and they’re likely to forget about you when their actual need arises. Make an offer too late, and you’ve missed the opportunity—and another lender has probably landed a happy new customer.
Finding the right triggers and insights into the correct timing to meet consumer needs is the key to making sure your efforts are not wasted.
Data about extended purchase behaviors can help guide the right offers at the right time. For example, new TransUnion findings show bankcard and auto lenders have an opportunity to leverage behavioral insight from other products—such as mortgage inquiry—which is predictive of increase in bankcard spend and both auto loan and card origination.
This theory was the inspiration behind TransUnion’s recent mortgage inquiry study, which focused on mortgage applicants in the prime or better risk tiers1 with an existing mortgage—those who are likely moving or refinancing. The goal was to understand if consumers really change credit behavior before and after a mortgage event.
The study included 16.7 million consumers who paid off their mortgages and moved with new mortgages or refinanced existing mortgages between Q1 2013 and Q2 2015, and also 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 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.
TransUnion’s research found that consumers applying for a new mortgage are on average 2 to 3 times more likely to initiate an auto loan or credit card account over the next 12 months. As shown in the chart above, many of these consumers open these accounts as soon as one month after their existing mortgage payoff.
While the research confirmed that consumers do change their credit behavior, it also showed behavior contrary to what lenders might believe.
For example, one long-held 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.
Contrary to that view, the study also found consumers actually increase bankcard spend by up to three times in the month prior to mortgage payoff and new mortgage origination, as illustrated in the chart below.
There is also a difference in card spending between consumers who are moving compared to those who are refinancing, with the latter category spending more in the months before their mortgage payoff. Consumers who are refinancing may anticipate lower mortgage payments, and take advantage of the greater available cash flow by increasing card spending in the months before refinancing. For more details on each segment, visit our study page.
Personally, the most fascinating part of this research study is the finding that credit card spending increases prior to a mortgage payoff. Knowing these consumers may benefit from increased credit limits on existing cards can offer another way to be there for your customers when they need you.
Considering mortgage inquiry activity as an effective early predictor of an increased demand for credit across card and auto loans enables lenders to strategize relevant offerings. Overall, these findings illustrate how necessary it is to look across products to get the full picture of consumer credit behavior.
By using mortgage inquiry data and predictive models in marketing and account management strategies, lenders can identify existing cardholders with mortgage inquiries for proactive credit line increases, something many consumers will welcome leading up to the mortgage event.
Additionally, knowing that consumers either purchasing new homes or refinancing 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), can give lenders valuable information as they look for credit-active consumers with new credit card and auto loan needs.
Conversely, as consumers we may see an increase in timely offers from lenders—and additional options are prone to result in lower rates and more attractive loan terms, likely leading to more lasting and loyal relationships between borrowers and lenders.
1. 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.