For most people, building long-term financial security requires access to credit and the opportunities it provides. That access is also fundamental to a strong middle-class economy. Good credit is a gateway to obtaining loans for homes, cars, education and more at the best possible terms – which in turn fuels the country’s economic engine.
But according to a 2016 report, nearly one in five American adults have no credit history or credit score. Many of these individuals have jobs, homes and records of financial responsibility, and lenders are striving to gain greater insights about them.
The good news is that innovations in big data promise to help more individuals expand their access to financial services. These innovations, coupled with advanced analytics, are also helping lenders rapidly translate complex consumer data into insights that drive smart growth and better offers.
Historical data enable lenders to offer loans to millions of new consumers—and to offer better rates to millions more.
By using trended credit data, lenders can incorporate up to 30 months of account history data on loans and credit accounts into their lending and risk decisions. With historical credit data such as change in balances and actual payment amounts, lenders gain new insights into how a borrower’s credit behavior is evolving. For example, a lender can see whether a consumer is paying off credit cards each month or carrying a balance—and whether that monthly balance is trending down or up.
Demonstrating the importance of historical data for lenders and the benefit for consumers, Fannie Mae—the leading source of funding for mortgage lenders—now requires the use of credit reports that support trended credit data when underwriting single-family mortgage applications.
Credit card usage has traditionally been vital to building a credit history, especially for younger and emerging consumers. But due to changes in demographics, financial habits, laws governing card marketing and economic conditions, millions of consumers face obstacles to obtaining cards in order to establish credit.
Today, more lenders are utilizing alternative data, including rental payments, checking account history, property tax records and short-term loan activity, which provide lenders with new ways to gauge whether consumers have been financially responsible or have assets they could tap to meet their obligations.
Together, trended credit and alternative data are helping consumers get better terms on loans and credit cards. They’re helping lenders offer more credit without increasing their risk profile. And they’re providing millions of hardworking, new-to-credit individuals with the opportunity to build financial security and pursue higher standards of living.
TransUnion has a long history of market innovations that promote financial inclusion and offer consumers access to a brighter financial future. A pioneer in trended data, TransUnion’s CreditVision Link Scores are the only scores in the market that combine directional trended data and alternative credit data, such as payment history and small dollar lending. CreditVision Link Scores allow lenders to score over 60 million more people versus traditional models.
That’s using Information for Good.