The innovative path to growth
Whether you’re basing growth on expanding current customer relationships, better scoring your prime audience, or lending to the subprime segment, thin and no-hit populations, you need the right information. Using credit bureau trade line data alone limits your potential. Innovative lending strategies will help to expand your growth opportunities.
With customer acquisition growing via the online channel, the competitive difference can be a more comprehensive picture of consumer risk. A risk model that incorporates whether a consumer is building or decreasing balances, increasing payment amounts over time, or has a solid payment history with alternative lending arrangements can help improve acquisition. You’ll be able to score the entire marketable universe, combine data assets for more accurate risk predictions, and expand consumer access to services.
In pioneering the effort to include trended credit data for more accurate risk assessment, TransUnion conducted the CreditVision® study which found that approximately 26.5 million previously unscorable U.S. consumers can be scored in the prime and near prime risk tiers using a risk score built on trended credit data. In addition, the super prime customer base could expand by more than 23 million U.S. consumers—that’s 21% of consumers scored as super prime versus 12% scored in the same tier with traditional risk scores.
Likewise, alternative data is shown to score more than 90% of applicants who would otherwise be returned as no-hits or thin-files by traditional models.i
Innovative lending strategies using both alternative data and trended credit data enable you to maximize results. With additional and different types of data you can:
- Explore opportunities with more potential customers across all credit risk tiers
- Offer the right pricing
- Minimize institutional risk
- Capture greater wallet share
- Build stronger consumer relationships
When multi-sourced information is used for credit assessment, many current and potential customers may be assessed as lower credit risks and thereby afforded preferred lending terms, such as lower interest rates or higher credit lines.
Innovative lending strategies are the way of the future
According to The State of Alternative Data report, there has been relatively slow adoption in using alternative data – only 34% of lenders surveyed use it today. However, more than half of respondents believe alternative data will become widely used within the next three years.
Additionally, in October of 2015, Fannie Mae announced it would require lenders to use trended credit data in the assessment of mortgage applicants beginning in mid-2016. This is further evidence that trended credit data can benefit lenders and borrowers by providing a more comprehensive view of a borrower’s historical credit performance.
Over the years, we’ve seen first-hand the insights and techniques needed to engage, acquire, and affect financial inclusion of a broader range of consumers. To adapt to the future of lending, it’s time to complement or enhance existing scoring strategies with a hybrid approach to risk assessment, using the historical insights of trended credit data and alternative data sets together.
Next generation algorithms that use this hybrid approach are revolutionary and available today. You can precisely score emerging credit populations and potential customers across all credit risk tiers with greater insight. The guidance of a data powerhouse, leader in regulatory compliance, expert in risk model development and predictive analytics, together under one roof can improve data-driven activities.
The future of lending resides in the innovation of a credit score that combines both trended credit bureau data and alternative data sources ultimately leads to better outcomes for you and customers alike.