Tags: Time | Revolving | Credit | Balances

Time: Revolving Credit Balances Could Become A 'Red Flag'

By    |   Sunday, 10 November 2013 10:46 AM

Even if you pay your bills on time, lenders may view revolving credit card balances as a red flag, warns Time.

These words of caution came on the heels of the roll-out of CreditVision, a new product from credit agency TransUnion. It gives creditors a detailed look at how consumers have handled their accounts over the previous two-and-a-half years.

“Without the data available in CreditVision — historical balances and actual payment amount — it is very difficult, and inaccurate, to determine whether consumers are transactors or revolvers,” Charlie Wise, vice president of TransUnion's financial services business unit, tells Time.

Transactors pay their balances in full every month. Revolvers carry balances from month to month.

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Identifying which is which can be important for creditors. According to TransUnion, revolvers are up to three times more likely to become delinquent on a new loan within two years than transactors with similar risk profiles.

Lenders can use the new insight from CreditVision to help increase marketing effectiveness and better match the right products to the right consumers at the right time, improving risk management practices, TransUnion says.

TransUnion is the last of the major credit agencies to provide such a tool. Time says Equifax introduced a similar product in August, while Experian has provided the capability for a couple years.

The prevalence of these credit tools comes as Americans have shown a renewed consumer appetite and fondness for using plastic.

Consumer credit began soaring earlier this year and “the big surprise was the jump in revolving credit,” Scott Hoyt, senior director of consumer economics for Moody's Analytics, told USA Today.

“We haven't seen much growth in credit card balances throughout the recovery,” Hoyt said. But the growth in revolving credit “shows a willingness to start building up some credit card balances,” he added.

With these new credit tools offering a more detailed view of credit behavior, consumers may want to carefully consider whether revolving balances are in their best interest, especially those people who tend to pay minimum balances.

For consumers, these tools that provide a historical view could be “good or bad, depending on what they’ve been doing,” Trevor Carone, Experian’s senior vice president of sciences and analytics, told Time.

It's good for consumers who have been paying down their debt, especially if they are wiping out a substantial debt quickly, because lenders now have proof of that, Carone explained.

But for people whose balances are growing from month to month or whose payments have dropped to just the minimum, “that’s a sign of risk, and lenders will take that into consideration,” he added.

The effects may be felt even among those who aren't trying to open new accounts.

“A consumer’s payment behavior on their credit cards and loan accounts may in fact impact their credit score,” once TransUnion starts offering scoring models that incorporate this historical data later in the quarter, Wise told Time.

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Even if you pay your bills on time, lenders may view revolving credit card balances as a red flag, warns Time.
Sunday, 10 November 2013 10:46 AM
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