What are Credit Triggers?

‘Credit trigger’ is a relatively new term in the financial world, but if you are not yet familiar with the concept then now is the time to learn. A quickly increasing trend fed by the three main consumer credit reporting agencies, credit triggers are alerts provided to paying lenders about the credit activities of their borrowers, or of potential future borrowers.

The opportunity for lenders to be alerted to triggers has been around for years, but not to the extent that it is available (and encouraged) in today’s financial environment. Lenders today may sign up for a “trigger service” at any or all of the consumer credit bureaus – Equifax, TransUnion, or Experian. When there is a trigger on the account of a consumer in whom they are interested, lenders nowadays are informed nearly instantly.

So what types of things might result in a trigger alert for a lender? It depends on what the lender has signed up for, and which consumers are of interest to him or her. Each lender chooses the criteria of interest, and then will be alerted of any triggers that match the specified criteria. In general, there are three main types of credit triggers: (1) risk alerts, (2) collections assistance, and the more controversial (3) marketing opportunities.

Risk Alerts

Lenders may be notified of a credit trigger when one of their current borrowers takes some action that might indicate an increased risk on the part of the lender. For example, a borrower might take out a large amount of new debt, or he or she might suddenly begin to fall behind in making payments. Lenders view such actions as indications that the borrower represents an increased risk.

If you find that your currently available credit changes seemingly at random, then your lender might be receiving risk alerts from a consumer credit bureau and changing your account accordingly. For example, maybe your credit limit has been lowered without explanation.

Collections Assistance

Credit triggers labeled as collections assistance are provided to lenders or collections agencies based on your actions regarding other debts. If you begin paying off other debts, for example, then the collector or creditor will be informed that you have new funds with which to pay. Your lender will assume that if you can make payments on other debts, then it is a good time to press you for payments to him or her, as well.


Marketing Opportunities

The newest function of credit triggers, marketing opportunities, also is the most controversial. Being pushed more strongly than ever by the credit reporting agencies, especially Experian, these triggers provide lenders with leads for people who might be interested in their financial products. Alternatively, they might also forewarn lenders when their current borrowers are seeking out financial alternatives elsewhere.

Such marketing opportunities usually are seen in connection with mortgages. Lenders who sell mortgages can sign up for a trigger service that will provide them with a list of potential customers who are shopping around for mortgages.

These leads will be provided to lenders on either a daily, weekly, or quarterly basis, and will match the specific criteria that they designate as desirable in a prospective mortgage borrower. Mortgage trigger leads are designed to provide mortgage lenders with potential customers whose credit profiles are acceptable with their eligibility standards.

In such circumstances, lenders only are supposed to contact leads if they have a specific credit offer to make to them. In addition, there are conduct rules designed to keep consumers from excessive lender contact. For example, lenders generally are not supposed to contact leads by phone unless specific aspects of the situation lead to an exemption of the rule.

Mortgage trigger leads also may be useful for lenders who wish to keep a careful watch on their existing borrowers. Mortgage lenders may specify any number of individuals’ credit reports that they would like monitored, so that they can be forewarned when a person is looking to refinance elsewhere. If the lender knows this before a borrower goes through with a refinance, then steps can be taken to try to keep the business of the borrower.

So, are Credit Triggers Good or Bad?

With the recent significant increase of credit triggers as marketing opportunities at hand, borrowers and experts alike are pretty divided on whether or not credit triggers are a “good” thing.

On the one hand, some argue that the tracking of credit report changes by lenders is an invasion of privacy. They suggest that when a consumer authorizes a specific lender to pull his or her credit, he or she is not authorizing the use of that pull for any other purpose.

Others posit, however, that this new marketing tool is the next natural step, and one that is greatly beneficial for consumers. It forces financial institutions to be even more competitive in the rates, terms and conditions of their loans, which translates into better deals for borrowers.

No matter what one’s personal opinion, however, one thing that seems certain is that credit triggers will not be going anywhere soon. You may or may not agree with the use of credit triggers, especially for marketing purposes, but the best thing that you can do is to personally monitor for changes in your credit report, and to understand how those changes could result in triggers. As long as you are aware of how credit triggers might affect your current accounts and your opportunities to obtain new credit in the future, then credit triggers can work for you.