Study Quantifies How Credit Card Repayment Affects Risk
Credit cardholders who routinely pay only their monthly minimums present double the credit risk as those who pay more, even if only slightly more, according to a new study.
TransUnion, one of three national credit analytic firms, conducted the Credit Card Payment Study.
TransUnion also developed a metric called the aggregate excess payment to better gauge how many dollars in excess of the minimum payment were made. This variable was calculated by subtracting the total minimum due from the total payments made across all of a consumer’s credit cards.
Two consumers with a TPR of 2.0 could have much different AEP profiles, TransUnion discovered. For instance, a consumer making $2,000 in payments with a total minimum due of $1,000 would have a TPR of 2.0 and an AEP of $1,000. A consumer making $200 in payments when the total minimum due was $100 also would have a TPR of 2.0, but his or her AEP would be $100.