“This finding is important, both because it quantitatively confirms the conventional wisdom and because it illustrates how necessary it is to look across products to get the full picture of consumer credit behavior,” said study co-author Ezra Becker.
The study found that “prime or better” mortgage applicants were more than 50% more likely to open a credit card over the 12 months following a mortgage inquiry than the general population. The same group was up to three times as likely to open an auto loan in the same period.
Credit card originations for consumers who moved into new homes were 54% higher 30 days after paying off an old mortgage compared to 30 days prior, the study found. And average auto loan originations were 84% higher. The study found nearly identical trends among refi customers.
“Clearly consumers who are planning to move or refinance their mortgage wait until after that event to seek new credit – but once that new mortgage occurs, their demand far outstrips the overall population,” Becker said. “This information is particularly valuable for lenders who are seeking credit-active consumers with higher demand for new credit cards and auto loans; this population is much more likely to respond to new offers, making them an attractive segment that lenders can now identify.”
The study also had some surprising results. Contrary to conventional wisdom, the study found that consumers increase their credit card spending – up to three times higher than normal – in the month prior to paying off an existing mortgage.
“A longheld assumption among lenders is that new mortgage applicants spend less on their credit cards prior to their mortgage closing events – either to ensure their credit picture does not change or simply because they anticipate spending more once they move into their new home,” wrote Charlie Wise, study co-author and vice president of TransUnion’s Innovative Solutions Group. “Our research indicates that millions of consumers actually increase their credit card spending in the months before the new mortgage origination. Whether it’s to purchase furnishings or make updates to their existing property, many consumers who move increase their spending before moving into their new residence.”
The study included data from 16.7 million consumers who either paid off their mortgage and moved with new mortgages or refinanced their existing mortgage.
A new TransUnion survey found that consumers applying for a new mortgage are two or three times more likely to open a new car loan or credit card account in the following 12 months. Many consumers, in fact, opened new accounts within a month of their existing mortgage payoff.