The ability to identify consumers just before they are in market and shopping for new credit cards or auto loans can result in significant improvements in campaign response rates and return on investment. The question is: how can lenders easily and accurately identify consumers just before they are in market for new loan products?
A number of card issuers and auto lenders use inquiry triggers from consumer credit files to identify those who are shopping for new cards and auto loans. These inquiries are posted to the consumer’s credit report when she applies for credit, and are strong indicators that the consumer is actively seeking credit. However, as a call to action, these inquiries are generally not timely, in that the consumer has already applied for an auto loan or credit card. By the time another lender can see this information and contact the consumer with a rival offer, it is generally too late.
What lenders do not typically consider is using inquiry data from other loan types to predict demand for an auto loan or card. However, it is logical that there is an interrelationship between consumer loan types. The conventional wisdom is that consumers who are planning a major purchase and associated loan origination may defer taking out other loan types for a period of time, and then “catch up” soon after the major transaction is complete. If true, this may unlock a useful predictor of loan demand that could prove valuable to lenders in timing their offers. The most intuitive illustration of this dynamic is obtaining a mortgage to purchase a home.
To explore this concept, TransUnion conducted a study of mortgage borrowers to determine if their behavior before and after a new mortgage origination could predict activity on other loan types. The study looked at 16.7 million existing mortgage borrowers who originated a new mortgage — either moving to a new home or refinancing an existing one — from January 2013 to June 2015. The study looked at their behavior on credit cards and auto loans in the six months before- and 12 months after the date of their mortgage closing (the date on which the consumer pays off the prior mortgage and then opens the new mortgage).
TransUnion’s research saw a drop in the origination activity for new credit cards and auto loans over the six months leading up to the mortgage closing date. This behavior follows the conventional wisdom and advice that consumers should protect their credit by curtailing new borrowing on other loans to ensure they are approved and get the best terms on their new mortgage.
However, once the mortgage closing occurs, consumer credit behavior changes dramatically. The study found that, in the months after the mortgage closing, consumers are on average two to three times more likely to open a new auto loan or credit card account. In fact, much of this activity occurs in the month immediately following the mortgage closing. This increased demand is not surprising: consumers who move to a new home are likely to need a new car, or more credit to buy new appliances and furnishings. And, consumers who refinance mortgages generally have lower monthly payments as a result, freeing up cash flow for other purchases. Clearly, this is a population with significantly higher loan demand for a relatively short time, an attractive target for both auto loan and credit card marketers alike.
For marketers who want to reach these consumers in a timely manner, simply observing the new mortgage on the consumer’s credit report may not be sufficient, given that much of the new auto and card activity occurs in the days and weeks after the closing. Fortunately for marketers, a better approach exists: using the mortgage inquiry on the consumer’s credit file as the indicator. Consumers typically apply for a mortgage one to three months prior to new mortgage closing, and those mortgage inquiries show up on the consumer’s credit report immediately. Thus, auto loan and card marketers who use the mortgage inquiry as a signal have a one- to three-month lead time to identify consumers who have recently applied for a mortgage and make them an offer for a new card or auto loan.
The timing of these campaigns would then closely match when consumers are actually in demand for a new auto loan or card, resulting in higher campaign response rates and return on marketing investment. Indeed, understanding how consumers change their behaviors when preparing for a mortgage event can be a valuable and profitable way for marketers to drive acquisitions and improve investment returns.