A Potential Market of 100 Borrowers

By Ray Birch01.13.2020

Experian early this year will introduce a new credit score product it says will help financial institutions make loans to more credit invisible and thin-file consumers—a huge market of more than 100-million people.

Called Lift, the score does more than access nontraditional credit data, such as rent and utility payments; it combines traditional credit, alternative credit and trended data assets to create a more holistic picture of consumer creditworthiness, explained Alpa Lally, VP of data for Experian’s consumer bureau.

“What we are trying to do is target the 100 million consumers who are essentially restricted by traditional scoring methods used today,” said Alpa. “

As CUToday.info has extensively reported, the financial services industry has seen a number of alternative credit scoring models introduced by credit bureaus over the last few years. Experian also introduced an alternative scoring model, called Boost, in that period.

The Federal Housing Finance Agency, as well as Congress, have also been investigating the value of alternative scoring models.

The Real Key

But Lally said a key to the accuracy of its newest alternative credit score—which she said in testing has shown to be very accurate—is the use of trended data.

“Traditional credit data can show how a person is managing their debts at a single point in time. Ours is comprised of five fields of historical payment information over a 24-month period, which includes balance amount, original loan and limit amounts, scheduled payment amount, actual payment amount and last payment date,” she explained. “Trended data ultimately allows lenders to make smarter lending decisions while mitigating risk.”

For lenders to effectively measure risk, it’s important to know where a consumer is going based on where they’ve been, she said.

“Trended data allows lenders to analyze a consumer’s credit behavior over time and get a better overall picture of a consumer’s creditworthiness,” Alpa said. “Our early analysis shows that Experian Lift enhances predictive performance by 23% when compared to other scores used for identifying and underwriting credit invisibles.” 

Lally explained Lift has been tested with a number of financial services clients prior to its projected launch this year.

Leveraging Advanced Technologies

Lally emphasized Lift leverages artificial intelligence and machine learning.

“Fifty percent of the improvements we’re seeing with Experian Lift are due to the new, predictive data attributes being integrated, and the remaining improvements are because of the new technology and advanced analytics capabilities,” she said. “We want to increase financial inclusion, and help consumers gain access to the financial services they need. Being able to effectively score 100% of the population is key to accomplishing this.”

Lally believes Lift will bring more members into the credit union ecosystem.

“Maybe it’s new consumers who are joining because they can now apply for a different type of loan than they could in the past, such as a mortgage. Or maybe it is new members coming in because now it’s the first time they can actually apply for a loan,” she said. “With Lift credit unions can now score many of these consumers and extend their reach into the communities they serve and provide more services to the underserved. It’s giving people greater access to credit, and credit unions are reaching more members.”

Nearly One-Third of U.S. Population

The size of the underserved market cannot be overstated, emphasized Lally.

“There are 100-million consumers who are restricted by the traditional scoring methods used today either because they have a subprime score or because they lack a traditional credit history,” she said. “Alternative credit scoring models need to be accurate. Lift empowers lenders to analyze credit invisibles and thin file consumers who may have been unscorable in the past. This can be a game-changing score for many, and it will be available early in 2020 to help financial institutions target those 100 million consumers who are being rejected by traditional scoring methods.”

Reprinted with permission from CUToday.info, a leading source of news and resources for credit union decision-makers.