The Unrealized Value of Income and Employment Data

Every decision carries some degree of risk and businesses need to consistently make the right decisions to be profitable. Ongoing economic uncertainty has shaken the confidence of even the strongest institutions, heightening the need to better understand consumers’ financial profiles and capacity to pay. The broader the selection of data used to inform a decision, the higher the confidence as using multiple dimensions of information can help rationalize and substantiate it.

Income verification, for example, is integral to certain types of risk decisioning. As a regulated requirement for underwriting home mortgages, financial institutions use verification of income and employment (VOIE) to help determine whether to extend credit on a mortgage application — and how much — by confirming the income and employment information on their mortgage application. Property management companies use the same data to consider prospective tenant applications and mitigate income fraud. Without the insight provided by income and employment data, mortgage and tenant decisions would be less informed and likely riskier.

For verification and beyond: How income and employment data help fuel growth

Income and employment data is a type of alternative data that supplements traditional credit information to provide a more robust financial picture of consumers. Lenders, property management companies and other organizations use these supplemental insights to better understand and verify consumer income.

For example, auto lenders use traditional credit data to derive foundational insight into a consumer’s financial profile, including their propensity or likelihood to repay debt obligations. It’s vital information but only part of the picture. Auto lenders don’t automatically have insight into a consumer’s ability or capacity to meet their obligations when they pull a credit report because income and other monthly expenses aren’t included in the credit database. Income and employment data-derived insights detail the picture with a clearer view of the potential risk (and reward) associated with a specific consumer, helping the lender make a solid decision that benefits both the consumer and business.

The gig economy has driven more interest in another area where income and employment data can provide visibility to blind spots in traditional credit datasets: consumer income streams. Consumers who look similar through the lens of traditional credit data can look quite different when income and employment insights are applied. While two individuals may have the same credit score and other financial attributes, their different income streams and cash flow trends could materially differentiate them in the eyes of a financial institution or property management company determining how to proceed with a request or application. Filling important gaps with this information, businesses are equipped to make more accurate risk decisions, which can ultimately contribute to their bottom lines.

Stimulate growth with greater financial inclusion 

Providing access to financial products and services to those who may otherwise be overlooked or denied credit, particularly no/thin-file consumers and those working to rebuild credit, is another way income and employment data can help drive growth. Over 20% (~60 million) of US adults lack sufficient credit data to be scored by traditional risk models,[1] putting those individuals at a disadvantage in any credit-based decision, particularly those involving automated decisioning due to its reliance on a credit score. Having a fuller view of their complete financial profiles can give those consumers more opportunities to be considered for credit.

Gaining access to this information has traditionally been challenging, but the financial services industry is experiencing an increase in consumers looking to play a more active role in their financial lives. By consenting to financial institutions accessing their data, consumers are enabled to present a more holistic financial picture for lenders to evaluate their creditworthiness. With this consumer-permissioned data, also known as consumer-contributed data (CCD), consumers can use their financial information to supplement their credit profiles with insights like estimated annual income, paycheck frequency, rent and other monthly expenses to aid in the decisioning process.  

A more complete financial picture of consumers can lead to increased and improved opportunities for them, while resulting in better decision-making for businesses. As digitalization continues to rise and privacy trends put consumers in control of their data, the proliferation of consumer-permissioned data should only continue. This will likely make consumers more accustomed to sharing their data, which may drive even greater financial inclusion.

Is your current income verification strategy working for you?

The use cases for income and employment data are compelling — in some cases, mandatory — and the demand for verification solutions is growing. But businesses using legacy processes are contending with growing costs and inefficient methods to get the bare minimum of what they need.

Employing the right income verification solution can do more than mitigate risk — it can stimulate growth. One solution does not typically fit all and there are options to consider. It may be worth taking a fresh look at your current verification strategy and asking: Are all your needs being met or is there opportunity for productive change?

To learn more about income and employment verification and how you can more effectively use it to meet your business goals, visit the TruVisionTM section of our website, including TransUnion’s suite of income and affordability solutions, or contact your representative.

[1] US census and TransUnion US consumer credit database. February 2023.