Debbie Newman and Jack Bishko | Decisions Solutions Group, FIS
June 29, 2020
When making decisions about whether to extend credit to a consumer many lenders rely solely on traditional credit data information or score from the three nationwide consumer reporting agencies. While that may provide a useful indication of how the consumer has handled their past obligations, it doesn’t provide a complete picture of their overall financial stability. It also doesn’t help the approximately 26 million Americans, who are “credit invisible”,(no credit history) or the 19 million “unscorable” Americans – those with a credit history that is stale or incomplete and does not generate a traditional credit score.
Lenders need a way to gain insight on consumers with little or no credit history. With little to no information from the major bureaus, scoring models cannot accurately predict the risk in issuing a line of credit. So consumers with limited to no credit histories face substantially less access to credit. And many times, where credit is available, it comes at a high cost to the consumer.
Furthermore, 30-40% percent of scoreable consumers do not have favorable credit scores and can have trouble gaining access to competitive credit products. Lenders also need to gain additional insights on this population to better assess risk and optimize product placement.
As the world becomes more digitized, an ever-increasing volume and variety of data is being created, especially of financial information. Coupled with increased automation, a broader array of alternative data sources can be accessed and analyzed to make more informed financial decisions.
Pulling in alternative credit data, such as alternative financing, bank account aggregation, and on-time utility and rental payments, provides a more holistic view of a consumer’s credit stability. These insights can also help lenders identify and prevent fraud (such as identity fraud), and better access an applicant’s ability to pay. Ultimately, it can improve credit access and decisioning for millions of consumers who may otherwise be overlooked. In addition, smart financial institutions use this data to gain “wallet share” by positioning additional products that match the consumer’s lifestyle needs.
FIS’ ChexAdvisor suite helps bridge the gap between traditional credit data and a consumer’s banking and alternative lending history. Providing approximately 400 unique attributes, lenders can gain insight on the underserved consumer by supplementing their existing decision criteria with our unique data. This solution also provides new information on a consumer’s financial history – giving insights on an otherwise credit invisible consumer.
Not including these new forms of data may result in missed opportunities and smart growth. Considering alternative data in credit decision-making can help improve risk assessment and provide an opportunity to tap into a market of new consumers who have traditionally been overlooked.
The reality is that managing risk, fraud and compliance is an ever-evolving responsibility and FIS continues to develop innovative means in which advancements can be made.