Today’s personal loan landscape looks much different than it did at the beginning of 2020. Lenders face dynamic economic conditions as delinquencies normalize toward pre-pandemic levels and increased competition challenges growth. And with 2020/2021 delinquency rates depressed by government stimulus, lender accommodations and lower consumer spending, getting an accurate picture of consumer creditworthiness isn’t as straightforward as it once was. With plentiful loan offers in market giving consumers their pick — those lenders not equipped with the best predictive solutions face greater risk of adverse selection and profit compression.
To expand access, improve targeting efforts, differentiate offers, reduce acquisition costs and approve more applications while maintaining target risk levels, lenders are enhancing marketing and underwriting strategies with more robust credit data. Recognizing static credit data alone can leave blind spots, savvy lenders are turning to trended credit and alternative data to develop more refined insight into consumer behaviors and credit risk. Leveraging trended data algorithms— such as spend patterns, product usage, balance trends and payment history — provides lenders with actionable insights into consumer credit behavior changes over time. Gaining insight into a consumer’s trajectory — whether their credit risk profile is improving or declining — also helps lenders overcome the impact of pandemic conditions on delinquencies.
Layering on alternative data, such as checking/debit account insights, address and phone stability, public records and real estate information, enables lenders to score more consumers and expand financial access, especially relevant for thin-file and new-to-credit consumers. The combination provides a more well-rounded yet nuanced view of consumer credit risk, and significantly outperforms traditional credit data across the lending spectrum.
Lenders looking to build out next-generation models are implementing trended credit and alternative data across their lending practices. To illustrate the benefits of layering data in marketing and underwriting applications, TransUnion released a new quick guide.
For insight into four strategies lenders have adopted (each offering a balance of ease, performance and time to market) and the positive impacts they reported, watch this case study video that delves into: