The recent economic downturn forced many consumers across the country to drastically reconsider the ways in which they approach many aspects of their finances, and that includes taking greater caution where their credit is concerned.
Now, new data shows that many consumers have taken a firmer hold of the reins when it comes to keeping tabs on their credit, but those who do are not generally in a better position to deal with the various accounts in their name, according to a study from the credit bureau TransUnion. In general, people who regularly monitor their own credit tend to have more loans for new cars and credit cards in their own name, and do better in keeping those accounts under control.
"Our study started with the conjecture that individuals who monitor their credit health might be motivated the same way as people who monitor their physical health," said Ezra Becker, vice president of research and consulting in TransUnion's financial services business unit. "We assume the latter generally fall into two categories: healthier people who want to stay that way, and less healthy consumers who want to become fit. We have found that consumers who monitor their credit tend to fall into two similar groups: credit-healthy consumers who wish to maintain that health and/or guard against identity theft; and riskier consumers that are looking to take proactive measures to better manage their credit profiles in anticipation of acquiring additional credit."
Inside the numbers
Perhaps the most important thing the study found is just how consumers who regularly monitor their credit do when it comes to having the ability to keep those accounts under control, the report said. For instance, during the two-and-a-half-year period studied, 3.4 percent of those who kept an eye on on their standing opened a new auto loan, while just 1.9 percent of those who didn't monitor their standing did the same. Further, 6.3 percent of the first group opened a new credit card account, compared with just 4.3 percent of the second.
Becker noted this was important because it may show that credit-monitoring consumers are more receptive to new credit offers, which in turn leads to their opening them at far higher rates, the report said. But at the same time, it's also interesting that the study found delinquency rates on these new loans are only slightly higher among those who don't monitor their credit regularly, meaning that there may not be as great a risk for lenders in this area than many might have expected.
How this affects delinquency
Perhaps counter-intuitively, those who regularly check their credit ratings are more often behind on their various payments, the report said. In all, 2 percent of those who fall into the former group were 60 days or more behind on new auto loan payments, compared with 1.5 percent of the latter. Further, 2.5 percent of monitoring consumers were 90 days or more behind on new credit cards, while 1.9 percent of non-checkers were in the same position.
Becker stated this trend indicates a slightly more significant risk in lending to people who are diligent about checking their ratings, the report said. However, this may simply speak better to consumers who do not check their credit, and could give lenders a greater incentive to extend them credit where they might not have in the past.
Where credit scores come in
Of course, when considering this type of thing, it is also important to take into account just where the consumers in question stand with relation to their habits about checking their various credit documents, the report said. In this area, there was actually a reversal of what common sense might dictate. Among these two groups, those who regularly checked their credit were actually at higher risk of having a subprime score, with 50.4 percent falling short of the mark. That's compared with 40.1 percent of those who don't keep close watch on their accounts.
Becker believes this may, however, be the result of consumers getting themselves into serious trouble financially and then working more diligently to rebuild their standing, the report said. This would give them that greater interest to more closely monitor their progress as they work toward respectable levels. On the other hand, many consumers who are generally in good standing might not feel the need to regularly check their credit because they have a good understanding of their position and don't worry about their ability to qualify for new lines of credit when they need to.
If you're interested in monitoring your credit, perhaps the best way to do it is by ordering a copy of your credit report. By doing so, you may even be able to identify any potentially unfair markings that could be dragging down your credit score.