As lenders face highly competitive markets and increased scrutiny of better lending practices, industry leaders are exploring how additional information can be leveraged to provide greater insights to the likelihood a person will pay his or her debts. To this end, consumer credit scores are critical inputs to lending decisions, calculated using consumer debt obligations at a single point-in-time, with delinquency history only. This fact of conventional scores gave us reason to theorize what additional data could be used to better determine risk and enhance lending strategies.
A clearer picture of how consumers manage their credit, good and bad, was needed to show how a consumer has performed over time, indicating future behavior. To fill this gap, advanced scores incorporate trended data, also known as time-series data, capturing actual payment amount – as reported, and over 2 years of account history data for each trade line.
Advanced scores incorporate account history and trended data elements:
- Actual payment amount, as reported
- Over two years of account history data for each trade line
Trended data provides more clarity to past payment behavior and ultimately yields a more precise risk score – giving lenders greater confidence to grow their portfolios. In addition to better risk scoring, historical consumer behavior enables the ability to score consumers with limited credit history, who might not have been able to access credit previously. With advanced scores, consumers gain more options while lenders have the ability to make better-informed decisions to grow account volumes and profitability.
We recently published the Score Savvy Insight Guide to inform lenders of these specific new elements now being leveraged in TransUnion credit risk scores.
The guide also provides insight into scoring a greater population of consumers and how to achieve better segmentations across risk bands, giving lenders the ability to confidently approve more consumers.