I pay my credit card balance in full each month, but you’d never know it by looking at my credit report.
In fact, I wouldn’t look that much different from someone who pays only the minimum payment, which is considered riskier behavior by lenders.
The weird thing: That information used to be in my credit report up until 10 years ago, when the biggest credit card companies stopped reporting that payment data because it created too much competition among lenders.
As a result, people like me who pay off those balances are missing out on a better credit score and all the perks that come along with that, according to a recent study.
“It’s harming anyone who’s repaying their credit card in full. They’re not being rewarded for that behavior through a high credit score,” Benedict Guttman-Kenney, co-author of the study, told Yahoo Finance. “It’s also not incentivizing people to repay their credit card debt.”
The Consumer Financial Protection Bureau (CFPB), the government watchdog over financial services, has the power to force lenders to report this critical data, but it’s unlikely the agency will have enough teeth to do so under the next administration.
“I think the CFPB is going to shift a lot in how things are administered,” Brian Riley, director of credit advisory services at Javelin Strategy & Research, told Yahoo Finance.
By keeping payment data out of consumers’ credit reports, lenders are limiting competition between each other — to consumers’ detriment, a new study finds. (Photo: Getty Creative) ·NicoElNino via Getty Images
From 2009 to 2013, most credit card issuers shared with the credit bureaus what people were scheduled to pay each month and how much they actually paid, even though they were not required to under the Fair Credit Reporting Act.
The share of accounts on credit reports showing that information was 89% in 2013, Guttman-Kenney’s study found. A year later, that percentage dropped to 55%, and by 2022 only 36% of credit card accounts included that data in a person’s credit report.
What happened after 2013 that prompted such a decline?
That year, TransUnion — one of the three mega credit bureaus — launched a trended data product, which showed whether a potential borrower was getting riskier or less risky based on a historical view of their accounts. One of the pieces of information included in that product was the actual payment amounts on the borrower’s debts.
TransUnion pitched its product this way: The data could help lenders “identify specific credit trends and payment behaviors that allow them to make more precise lending decisions,” an executive said two years after the launch. “These added insights will help our clients confidently engage new credit-worthy and credit-seeking populations. The result: More consumers will gain access to credit.”
And, of course, lenders would come away with more new customers. It was such a promising spiel that the two other bureaus, Experian and Equifax, quickly followed with trended data products of their own.
Soon after, though, that payment information started disappearing from all our credit reports. A separate study conducted by the CFPB found almost the exact results.
So, what on earth spooked the credit card issuers? It turns out that the trended data worked too well. It allowed lenders to target potential cardholders who would be very profitable — and who presumably were customers of other issuers.
Lenders could home in on those who spend a lot and generate revenue from transaction fees. And they could zero in on cardholders who pay the minimum or just above and rack up a lot in interest charges.
“Any bureau in the country can take an order from a top issuer that says ‘I want accounts that look like this, so I can solicit them,'” Riley said. “If that information is out there, it would be easier for competitors to find those customers they want to poach.”
Trended data rankled the six largest credit card issuers the most. Together, American Express, Bank of America, Capital One, Citibank, Discover, and JPMorgan Chase have cornered two-thirds of the credit card market since the early 2000s, said Guttman-Kenney, who co-authored the study with Andres Shahidinejad, and those six suppressed the data the most.
“They’re larger, so they have more to potentially lose,” he said. That’s why they quit reporting payment amounts to the credit bureaus: “to preserve their status quo in the market.”
The CEOs of the big six said as much themselves. In response to a CFPB request in 2022, one chief exec said the company found that “other major issuers were no longer providing this information” and that left his company at a “competitive disadvantage.”
File photo shows credit card logos posted on a store’s door in Philadelphia. (AP Photo/Matt Rourke, File) ·ASSOCIATED PRESS
The ones at a real disadvantage, though, are consumers.
By not reporting that payment data, borrowers who pay down their outstanding balances appear riskier than they otherwise are. Because of it, they may get worse terms when they take out credit, such as higher interest rates or smaller credit limits.
Competition in the market is also generally good for consumers because it drives down prices, lowers interest rates, increases credit limits, and improves rewards. It also allows new lenders to compete for customers instead of a market where six issuers dominate.
In fact, consumers whose lenders reported payment data were more likely to open new credit card accounts for up to two years after trended data was introduced, Guttman-Kenney’s study found.
“What these lenders are doing 1732373044 is they’re preventing customers from getting better credit card offers from competitors,” he said.
The CFPB could mandate credit card issuers to report this data again. It has the rule-writing authority that it could choose to exercise. There’s precedent, too.
Before the formation of the CFPB in July 2010, the Federal Trade Commission had this authority and, in 2009, wrote rules that required lenders to report credit card limits to the credit bureaus.
The circumstances looked similar. Lenders refused to share this information because adding a credit limit would make a person look less risky (and more attractive to competitors) by lowering their total utilization rate — the percentage of available credit they use.
“So lenders were strategically hiding the credit card limit as a way of preserving [their customer base],” said Guttman-Kenney.
That sounds familiar.
Once credit limits were reported on credit reports, people’s credit scores increased on average, and switching to new credit cards increased, Guttman-Kenney said.
So far, the CFPB hasn’t made any moves to address reporting payment amounts. However, a new personal financial data rights rule does require financial institutions, including credit card issuers, to transfer an individual’s personal financial data to another provider at the person’s request for free.
Theoretically, consumers could provide that payment data to a new credit card lender on their own. That is, of course, if the new rule isn’t rolled back under a second Trump administration.
In Donald Trump’s first term, the then-acting director of the CFPB, Mick Mulvaney, pulled back hard on enforcement and regulatory actions that occurred under his predecessor, Riley said. A similar sentiment could be brewing following Trump’s 2024 election and the GOP’s control of Congress. Republicans have long loathed the CFPB.
“I think the winds have changed on a lot of the regulatory issues,” Riley said.
Janna Herron is a Senior Columnist at Yahoo Finance. Follow her on X @JannaHerron.
