Published July 26, 2013
In a little-noticed change, your credit report has started revealing more about your credit card payment habits.
The big three credit bureaus are adding new payment data to the reports of some 160 million card-carrying adults. The data shows whether you rack up interest charges, giving card issuers another reason to chase you -- or avoid you -- as a customer.
"That sort of information would be considered pretty valuable from an issuer standpoint," said Michael Masasi, senior analyst at Mercator Advisory Group.
In the past, your credit file displayed your monthly balance, your credit limit and whether you failed to make at least the minimum payment.
What credit bureaus are adding now is a two-year review of the actual amounts you paid each month. These figures reveal whether you are a revolver who carries a balance and pays interest charges, or a transactor who makes purchases but generally pays them off before interest charges are triggered.
"Historically it has been incredibly difficult on the credit file to identify a transactor versus a revolver," said Ezra Becker, vice president of research and consulting for TransUnion's financial services unit. "The way payments look, they were indistinguishable."
TransUnion added 24 months of payment history to accounts on consumer credit files in January. Experian has expanded the historical payment information on credit reports within the past year, Vice President for Analytics Michele Raneri said. Equifax is adding payment amounts starting sometime in the third quarter of 2013, according to Demitra Wilson, senior director of public relations.
Credit bureaus say that the new information will help card issuers target their offers. "Lenders want to offer products that consumers want to have," Becker said, "and offer the right product to the right person."
Consumer groups wary
Consumer advocates see the potential for both positive and negative results.
"I think it's a benefit to know there are consumers who pay off their balances, and who they are," said Linda Sherry, director of national priorities at Consumer Action. "It shows they're more responsible; or rich."
However, "if it leads to discrimination, it could have a downside." In the card world, discrimination could take the form of aiming high-fee cards at transaction-oriented users. Fees could help issuers make up for the transactors' lack of interest payments. "Some of the offers we get in the mail may be different," Sherry said.
Credit scores unchanged, for now
Like other information in your report, the payment history is subject to the Fair Credit Reporting Act. The law gives you a right to protest errors and sets out a process for having problems reviewed and corrected.
Your credit score is based on your credit report, but the traditional score does not consider whether you are a transactor or revolver -- at least not yet.
"The FICO score is just looking at making payments on time," FICO spokesman Anthony Sprauve said.
However, people who usually pay their full balance have lower default rates than those who pay the minimum, credit bureaus said. That means your payment detail could eventually become part of the traditional score -- or of new, alternative scores.
At FICO, Sprauve said the company would need to evaluate two years' worth of the new data to see how it connects with delinquencies. "The whole purpose of the FICO score is to rank people in terms of their likelihood of repaying a debt," he said.
Cards shift to new target
The expanded credit report data comes during a shift in the credit card business. Traditionally, card issuers made their heaviest profits from users who carry a balance. But after taking heavy write-offs in the Great Recession, issuers are increasingly seeking transactors, who generate more transaction fees and are seen as lower-risk, longer-term customers. Cards generally collect transaction fees of 1 percent to 3 percent of each purchase from retailers.
"I think it has changed over the past several years," said Sanjay Sakhrani, an industry analyst at Keefe, Bruyette & Woods. "The issuers have moved up-market -- that's the transactor-oriented business."
Transaction customers, who are enticed by rewards cards, may not be as loyal as issuers believe, Sakhrani said. But they do have one important advantage: Unlike card revolvers, who use their cards for borrowing, they don't put a burden on the card issuer's capital reserves.
Capital One is building its transactor business as credit card balances stagnate, executives said on a conference call with analysts in June. The transactors generate more transaction fees, cause fewer write-offs, and "the customer relationships have longer duration," Chief Financial Officer Stephen Crawford said.
Separating transactors and revolvers is not entirely new. Experian has gained insight into payment behavior by analyzing changes in the balance over time, Raneri said in an email interview. Credit bureaus use data on the reports in market analyses that they sell to businesses.
How card use is revealed
But the addition of payment amounts going back two years provides a more focused view of how you use your card, experts said. The balance alone is difficult to interpret -- it may show revolving debt, or new charges made since last month's balance was paid off.
"We can now compare this month's payment to last month's balance, so we can determine if a consumer paid all the balance or just a portion," said Charlie Wise, vice president of business development at TransUnion U.S. information services.
Looking at consumers as pure transactors or revolvers is still difficult, however. The reason is that the same individual may use different cards for different purposes. You might park a balance on a 0-percent interest introductory rate card, for example, while making monthly purchases on a lucrative rewards card with airline miles or cash back.
Based on a sample of credit report data from March, Experian found big differences in transactor and revolver cards, which have typical monthly balances of $1,037 and $8,220, respectively.
In addition to revolvers and transactors, the card world is populated by "rate surfers," who frequently transfer balances, Experian says. Then there are consolidators who move debt from multiple sources to a card or maybe a home-backed loan, and seasonal users who dip into their available credit only at certain times of year.
"In general, it's probably better to have this information accurately reported," Sherry of Consumer Action said of the payment data. The financial consequences of paying only the minimum are very different from paying the full balance on a credit card, yet the different groups of consumers were hard to tell apart by looking at their credit history. "There's always been that bit of non-transparency," she said.
Why is the payment detail being added to credit reports now? The "Metro 2" format that lenders use to report data to credit bureaus already includes payment details, so the information is not new. But now credit bureaus say they are devoting the computer resources to maintaining the figures on millions of credit reports, after testing the data to meet FCRA standards. And analysts said that the growing fragmentation of the card market into different types of cards is driving demand for more refined information about how customers use cards.
"It's more a case of the technology catching up with the aspiration," said Wise at TransUnion. "Think of 300 million consumers -- billions of (accounts) get reported to us. That's big data ... it's a pretty big advance."See related: Scared of Big Brother? Too late, says 'Big Data' co-author