How a Federal Reserve Board Interest Rate Increase Impacts Consumers

TransUnion conducted a study to understand which consumers are exposed to a payment shock, and the results of a 0.25% rate increase.

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In this study, we’ll answer pressing questions about payment shocks—a change in a consumer’s payment obligations—from an interest rate hike, including:

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How many consumers have credit?

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How many consumers have variable-rate credit products in their wallet?

A variable-rate credit product is susceptible to a payment shock because the interest rate can change over time. Examples of credit products that may have variable rates include credit cards, home equity lines of credit, mortgages and personal loans.

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But which consumers are really impacted by an interest rate hike?

Not all consumers with a variable-rate credit product are impacted by a change in APR. Some consumers are transactors and pay their balance in full each payment cycle. Some consumers have an APR that cannot be further increased.

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How much is the monthly payment shock for impacted consumers?

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Most importantly, how many consumers can’t afford their increased monthly payment?

TransUnion used its CreditVision® aggregate excess payment (AEP) algorithm, which incorporates monthly payments from mortgages, credit cards, student loans and other debt obligations, to determine a consumer’s capacity to afford their increase payment.

Lenders should be mindful of which consumers in their portfolio are at risk from payment shocks and use solutions such as CreditVision AEP to identify these consumers proactively.

Please fill out the form to find out how we identified impacted consumers, and what actually happened after the 25-basis point increase.

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