If you look at your consumer credit report, you may be surprised at what you don’t find there. While it will show the amount you paid on your auto loan, mortgage, and unsecured loan, you may not have access to information about how much you paid on your credit card. If so, you are not the only one: 165 million US consumers are missing this information, according to research by Rice University’s Benedict Guttman-Kenney and Northeastern University’s Andrés Shahidinejad (both recent graduates of Chicago Booth’s PhD program).
Between 2009 and 2013, lenders usually shared information with credit bureaus on payments information—both the amounts scheduled to be paid, and the actual payments—for credit cards, as well as for auto loans, mortgages, and unsecured loans. But by 2015, information on the actual credit-card payments was missing in credit reports for consumers holding cards from any of the six largest lenders that represent more than two-thirds of the market—American Express, Bank of America, Capital One, Citibank, Discover, and JPMorgan Chase—the researchers write. Moreover, the fraction of credit-card accounts in credit reports that showed payments information fell from 89 percent in 2013 to 36 percent at the end of 2022, they find.
What changed? To study this, Guttman-Kenney and Shahidinejad used consumer credit reporting data from the TransUnion Consumer Credit panel, housed at Booth’s Kilts Center for Marketing, which is a random sample of anonymized information on 10 percent of the US consumers who have credit reports.
Analyzing monthly credit reporting data from 2009 to 2022, they homed in on Trended Data, a product the credit bureaus launched in 2013.
Trended Data uses a history of credit-card actual payments and statement balances over time to estimate spending (the value of new purchases) and revolving debt (the statement balance less actual payments). Its measures allow lenders to locate and distinguish between two particularly profitable consumers: high-spending cardholders who generate interchange revenue (transaction fees paid by the merchant), and cardholders who produce interest revenue by carrying a high balance without defaulting.
The research finds that after credit bureaus introduced Trended Data, a product that made it easier for credit-card lenders to poach customers, the fraction of credit-card accounts in credit reports showing payment information fell from nearly 90 percent in 2013, when Trended Data launched, to about 35 percent by the end of 2022.
The researchers find evidence that Trended Data led to a breakdown in information sharing. The product made it easier for lenders to poach customers from each other, and especially from the largest and most profitable lenders. The study demonstrates that consumers whose behaviors were most exposed by Trended Data were more likely to open new accounts afterward.
Lenders thus stopped sharing the payment information the product relied upon. This eventually stemmed the flow of consumer switching, but it appears to have limited competition by making it more costly to acquire customers, the researchers write. It also helped to preserve the position of the incumbent lenders, which had the most to lose from the increased competition, according to the study.
Lenders need actual payments data to figure out who is a profitable customer—something the researchers illustrate by constructing models to predict how much money an account generates over its lifetime. They find that observing these payments data improves predictions, especially of interchange revenues. However, they also find that it doesn’t help predict lifetime profits for auto or unsecured loans, explaining why Trended Data didn’t pose a competitive threat in these markets.
Most of credit-card lenders’ income comes from interest and fees and so it may seem surprising that credit-card lenders took such drastic action as hiding their cardholder’s spending, says Guttman-Kenney. Lenders may only generate half of one percent of spending as interchange revenue, after the cost of supplying cardholders with rewards. The resulting income initially appears small relative to the $120 average cost of acquiring new accounts, as estimated by R.K. Hammer, a payments industry consultancy. However, the researchers find that high-spending customers with good credit scores often hold cards for longer periods of time, and they generate significant interchange revenues over the course of a card’s lifetime.
If actual credit-card payments information were still widely available and even used to generate credit scores, it would significantly improve the ability of these scores to accurately measure credit risk, the researchers calculate. The absence of this information adversely affects consumers by raising lending prices and limiting the amount of credit extended not only on their credit cards, but also on their auto loans and mortgages, according to the study.
A US regulation requiring credit-card lenders to share actual payments information should increase competition, Guttman-Kenney and Shahidinejad conclude. Indeed, in 2010, US regulators required credit-card lenders to share information about credit limits—and the researchers find this increased competition.
Benedict Guttman-Kenney and Andrés Shahidinejad, “Unraveling Information Sharing in Consumer Credit Markets,” Working paper, March 2024.
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