While general purpose credit scoring models have been around for decades, consumer engagement with scores only became conventional in the 21st Century. With the new millennium, score purchase was introduced as an on-demand service, but it was not until 2010 that third-party score access via freemium sites became a widespread consumer practice.
Although a relatively new paradigm, consumers and the financial services industry did not have to wait long to see the results of this expanded access to, and engagement with, credit scores. The traditional golden rule of good financial behavior – paying bills on time - was quickly supplemented by additional best practices reflecting growing awareness of the importance of credit. As paying down balances and regularly reviewing credit reports for accuracy started to become a more common consumer approach to maintaining financial health, positive trends that benefit businesses and customers began to emerge.
For example, the much-discussed, coveted and targeted Millennial consumer has been a key beneficiary of credit score education. Consider this from a fall 2016 Discover press release:
“73 percent of those [Millennials] who checked their credit score seven or more times in a year said that checking their score had a positive impact on their credit behavior, such as paying bills on time, paying down loans and maintaining low balances on their credit cards.”That said, dependent upon the scoring model leveraged, these positive trends have not been demographically uniform. The historically limited score choice mandated by government-sponsored mortgage lending enterprises, for example, is conspicuous for disenfranchisement of minority loan applicants. Of the 30-35 million consumers who are unscoreable and unreachable by financial institutions under this conventional credit scoring model, approximately 9.5 million are African American and Hispanic consumers.
For this reason and others that create unequal consumer financial lending access, Washington lawmakers are considering legislation that permits the use of alternative credit scoring models in Fannie Mae and Freddie Mac decisoning. The VantageScore® 3.0 credit score is one model that addresses the lack of demographic inclusivity that undercuts traditional scoring models. Provided annually to millions of consumers through freemium sites, as well as by many of the 2700 traditional lenders who use them, VantageScore credit scores have become particularly accessible and appealing to an increasingly credit-savvy consumer population.
More than 8.5 billion VantageScore credit scores were delivered between July 2016 and June 2017, according to the company. Usage of VantageScore is growing rapidly, particularly amongst the 30-35 million consumers who would be unscoreable under the model currently mandated by Fannie and Freddie.
Lenders offering VantageScore credit scores are following the dictates of sound business logic – and the lead of their customers. Many of the consumers who benefit from VantageScore credit scores are newer to the credit market, and will be in need of products and services that help them along their financial journey. For the mortgage industry to use only a credit scoring model that excludes millions of these consumers unfairly limits opportunities - for lenders, their customers and overall economic growth.
The public mortgage market should look to the example of the financial services sector. Finding additional methods for prudently expanding credit access is good business – and good PR. Consumers need not understand the architectural differences that account for VantageScore 3.0’s superior inclusivity, to be attracted to a model that respects a larger share of the population as a viable part of the credit economy.