CHICAGO — TransUnion wanted to learn more about how consumer performance might vary if the individual had multiple accounts with the same lender as opposed to having just one relationship.

The company this week released study findings that examined this situation and found consumers with multiple account relationships "dramatically outperformed" ones with a single account.

TranUnion insisted that in virtually all cases, delinquency levels on auto loans, first mortgages, home equity lines of credit and credit cards decreased considerably as the total number of relationships the borrower had with a lender increased. 

Study authors determined 30-day or worse vehicle-loan delinquencies dropped by nearly 50 percent between borrowers with one relationship and those with three relationships, sliding from 2.0 percent to 1.0 percent. They noted the rate dropped down even further — to 0.6 percent — for those consumers with five or more relationships with the lender. 

Despite the significant performance change in terms of vehicle loans, the TransUnion study revealed the most dramatic shifts in delinquency were seen with first mortgages.

In December of 2009, the study found that borrowers with just one relationship with a given lender had a 30-day or worse delinquency rate of 4.8 percent on the mortgage with that lender. However, TransUnion indicated this delinquency level dropped 17 percent to 4.0 percent if the borrower had two relationships with the lender.

Analysts went on to indicate that the rate dropped further to 2.8 percent with three relationships, 2.3 percent with four associations, and down to 1.9 percent with five or more relationships. 

On the credit card front, the study pointed out that 30-day or worse incident delinquency declined from 2.7 percent for borrowers with one lender relationship to 2.1 percent for borrowers with three relationships. And this figure is down to 1.6 percent for customers with five or more associations with the lender.

"Although the conventional wisdom has acknowledged the benefits of loyalty for years, this study is a major step in quantifying that benefit and giving lenders the ability to incorporate that insight into lending strategy," explained Ezra Becker, the author of the study and director of consulting and strategy in TransUnion's financial services business unit.

"As the economy recovers and lenders return to more active customer acquisition, our study gives clear, timely evidence of the value in lenders establishing multiple relationships with the same borrower," Becker continued.

"Our results go a long way toward easing the concerns some in the industry have voiced through the recession regarding customer concentration risk," Becker went on to say.

The company looked at data from six super-regional financial institutions — three banks and three credit unions — to complete the study. The data came from account standings December 2007 through December 2009.

Officials added that approximately 19 million consumers were included in each snapshot, and more than 400 million tradelines were evaluated in each time period. They stressed the study examined the correlation between the number of consumer accounts that were 30 days or more delinquent and the number of accounts the borrower held with the target lender.

"There is a clear, consistent and quantifiable increase in customer value associated with loyalty," Becker insisted.

"With the constraints of the recently passed Credit Card Act forcing lenders to find innovative ways to generate revenue, and the anticipated fierce competition for growth once the credit markets open up, it behooves financial institutions to understand how their marketing acquisition efforts and product offers to current customers impact delinquencies and write-offs throughout their operations," Becker suggested.

"From a consumer standpoint, this phenomenon is important because of the possible benefits that might be obtained by demonstrating loyalty to a particular financial institution," Becker continued.

"In short, credit relationships work best when both the lender and the borrower view the deal as a partnership," Becker offered.

TransUnion determined another important finding of the study was what it called the "Loyalty Effect" across the spectrum of credit risk. The company explained that one might assume that customers with multiple relationships with a given lender generally have higher credit scores than customers with fewer relationships with that lender, adding that loyalty can be captured by a traditional credit score.

"Our study revealed clear decreases in delinquency as a function of relationships even when controlling for credit score with robust results particularly in the near-prime and subprime segments of the population," Becker asserted.

"The conclusion is that loyalty is not adequately captured by traditional credit scores," Becker interjected. "This is exciting news for lenders and consumers alike, as it provides an avenue for extending credit to consumers who traditionally have constrained credit access but can yield quite profitable relationships for lenders."

Furthermore, TransUnion also believes its study, the "Loyalty Effect," is generally resistant to recessionary pressures.

For example back in 2007, study authors found vehicle-loan delinquency dropped almost 48 percent between customers with one relationship and those with three relationships with a given lender. They determined that difference in performance declined only marginally to 46 percent by the end of 2009 — after the worst recession in recent times.

"Loyalty is built far more effectively in difficult times than in good times," Becker stressed. "Consumers remember and appreciate those lenders that help them overcome a short-term liquidity crisis, or extend credit when others will not.

"Lenders must be prudent and thorough in evaluating consumer risk before extending credit," Becker added. "This study suggests that a consideration of the impact on the consumer of the decision to extend or deny credit, and the effect that might have on long-term loyalty, should be a part of that evaluation."