Credit Monitoring Consumers Have Lower Credit Scores

credit monitor

At first glance, this makes perfect sense. Those that actually keep an eye on their credit scores don’t have the best credit scores around.

Put simply, there’s a greater chance a consumer will choose to monitor their credit if it’s believed that it isn’t where it should be.

On the other hand, if you think you’ve got good credit, there’s less incentive to monitor it, let alone check it at all.

After all, credit monitoring typically isn’t free, despite some free trials that might be floating around.

The Stats

A TransUnion study actually came up with this interesting data takeaway last month.

The credit bureau noted that 50.4% of the monitoring consumer population had non-prime credit scores, which are characterized as VantageScores below 700.

Meanwhile, just 40.1% of the non-monitoring population had VantageScores below 700.

VantageScores range from 501-990, with scores below 700 in the company’s “D” bucket.

TransUnion’s vice president of research, Ezra Becker, attributed the difference to the fact that those with lower credit scores are actively looking to improve their credit.

While that’s seemingly good news, another interesting piece of data was extrapolated.

Those Who Monitor Also Apply for Credit More Often

open rate

The data revealed that consumers who self-monitor their credit are much more likely to apply for new loans.

Now this could be for several reasons – it could be that the sole reason they’re monitoring their credit to begin with is because they want to improve it before applying for a loan.

But it could also be due to related offers that come their way due to cross promotion from the monitoring services, or because they’re “told” that applying for certain types of loans can help their credit.

Many free credit monitoring programs, such as Credit Sesame and Credit Karma, make suggestions for consumers based on their unique credit profile.

If their scores are lower than they could/should be, these services may recommend that they open a new line of credit, such as a credit card or an installment loan, the latter being an auto loan or a mortgage.

While that’s speculation, I wouldn’t be surprised if consumers are opening lines of credit simply to “boost their scores,” whether it actually helps them or not.

Clearly this isn’t a responsible way to handle credit, but there’s a lot of misinformation out there regarding credit scores, so it’s not far-fetched.

TransUnion discovered that nearly 3.4% of the monitoring public opened a new auto loan, compared to just 1.9% of the non-monitoring population.

The same trend was seen in credit cards, where the rate of opening a new card was 6.3% for monitoring individuals, compared to only 4.3% for those not in the know.

Unfortunately, the delinquency rates were also higher for those who monitored their credit beforehand.

However, Becker noted that the late rates were in the same realm, and argued that the incremental risk could more than be offset by higher demand for lenders.

Should Credit Monitoring Lower Your Credit Score?

How’s this for a conundrum. The brains behind the almighty FICO score algorithm tend to call for lower credit scores for those who present more risk to lenders.

And this study appears to reveal that those who monitor their credit scores are higher credit risks, whether their monitoring is well intentioned or not.

Does this mean their credit scores should be dinged if they monitor their credit? Or is it already factored in beforehand?

Obviously, FICO can’t go after those looking to monitor their credit, but it certainly presents a bit of an quandary when other seemingly positive actions, such as short sales in lieu of foreclosure, are treated in the same negative fashion.

For the record, checking your own credit doesn’t lower your credit score, so don’t fret.

Author: Colin Robertson

Colin created this blog after spending several years in a job that required him to scour credit reports on a daily basis. His goal is to help individuals better understand their credit and get the most out of credit cards.

2 thoughts on “Credit Monitoring Consumers Have Lower Credit Scores”

Comments are closed.