It’s Here - A Single Risk Score to Expand Your Lending Pool

For lenders, today’s economy is causing some angst. While lending remains strong, many lenders are concerned about growth. How can they maintain high acquisition and origination rates while continuing to manage risk in this tough economic environment? 

Consumers need credit. Yet, lenders know that many consumers’ incomes are not keeping up with inflation, leading to increased lending risk. At the same time, interest rates are higher than they have been in decades. It is more expensive for consumers to borrow and more difficult for them to meet financial commitments – also increasing risk for lenders. 

Some lenders are seeing the impact of high rates plus high prices. Overall, card utilization rates have been increasing, while delinquencies for auto loans and cards are also starting to tick up(1). Plus, some economists expect delinquencies and defaults to increase in 2023 - especially when student loan repayments resume(2). These factors emphasize the need for lenders to revisit their acquisition and origination models while they continue to drive new business and manage risk.

New audiences to support lending growth

It is not uncommon for lenders to report that credit-based acquisition and origination models developed a short time ago are not bringing in the desired number of new customers. To address this challenge, smart lenders are altering their traditional credit-based decisioning models in an effort to keep their loan volumes high.

However, lenders focused on credit-based decisioning could be missing out on 77 million consumers that are thin-file or credit invisible(3). Plus, there are millions of credit-rebuilding consumers that may not qualify for traditional credit products according to traditional risk models. Lenders who are seeking to expand their marketable audience, find new pockets of opportunity, and increase approvals can go after these consumers by incorporating more consumer financial data into their credit models.

For example, even if a consumer does not have a traditional credit file, or is “credit invisible”, they may have a mobile phone or a utility account (or both). By incorporating payment transaction data from telco, pay TV, and utilities accounts, lenders can gain insight on every day payment behaviors. Then they can use these insights to better inform lending decisions. If a consumer pays these bills on time, they might be a desirable prospect or applicant for a new loan.

Similarly, consumers that turn to specialty finance services for their banking needs often do not have  traditional credit files. But consumers that reliably repay these bills – such as lease-to-own, installment loans, or cash advances – as per the terms of the loan may also be a good fit for lending programs.

An additional data source that only a portion of lenders consider as part of their decisioning models is trended credit data. By factoring in a multi-year view of a consumer’s credit history, lenders can better recognize consumers that have improved their credit profiles and now qualify for lending offers whereas they did not qualify before.

Simplify analytics with a single score

Each of these alternative datasets could be incorporated into lending models on a piecemeal basis to better refine targeting criteria and segment audiences. 

But to simplify analytics, manage risk, and achieve a bigger bang from their lending models, lenders can leverage a single, combined risk score that incorporates all of these alternative datasets: 

• Telco, pay TV, and utility account payment history from over 160 providers, plus

• Specialty finance data for more than 80 million borrowers that use these services, plus

• Trended credit data including 24 months of activity

Credit card issuers and lenders that offer personal and auto loans can leverage this single risk score by incorporating it into existing credit-based models, or combining it with standard credit scores and attributes. 

Either way, by including data on consumer payment history for bills that fall outside a traditional credit file, as well as trended credit activity, lenders can find new audiences for their lending offers. Stay tuned to learn what lenders can expect from this single risk score in terms of expanding their marketable audience, reducing risk, and gaining more customers. 

Explore our eBook to learn how lenders can use a single risk score that includes non-credit payment history to support growth efforts during an uncertain economy. 

1. Equifax Credit Trends, February 2023

2. “Student-Loan Bills are Set to Come Due, Adding Pressure on Younger Americans.” Wall Street Journal, March 11, 2023

3. Equifax analytics