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Why Alternative Credit Data Belongs in Your Short-Term Lending Strategies

Liz Pagel
Blog Post07/15/2019
Business Credit Trends and Reporting
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As a short-term lender, you may be looking for new ways to broaden your portfolio and understand the emerging population of consumers using short-term, alternative financing options. With growth in the short-term market, alternative credit data can help you gain more visibility into consumers' creditworthiness and price more effectively.

With alternative data, you can go beyond traditional data and the conventional credit score to uncover a deeper, more holistic view of potential borrowers. Using alternative data scores tailored to the short-term market can connect multiple data sources to get more precise views of consumers.

New ways to determine a consumer's creditworthiness

To remain competitive in a data-driven world, you must have a data-driven strategy. In an era where information is abundant, the key is determining which type of information will help you evaluate potential borrowers. Alternative credit data includes a wide range of relevant information that traditional data or trended data don't typically consider, such as:

  • Checking and deposit account information
  • Cell phone and utility bills
  • Short-term loans
  • Virtual rent-to-own
  • Shorter installment loans

More robust credit data paints a more comprehensive picture for you to evaluate borrowers' risk and understand their spending and payment behaviors. With scores and insights tailored for the short-term and small-dollar credit markets, you can more confidently lend to emerging credit populations and score smarter.

Identifying the short-term loan consumer

Short-term loans are the largest category of loans not shown on the traditional credit report. So, it would be helpful to know who your potential short-term borrowers are and what they're about. What are their spending histories, patterns, trends and behaviors — what is their consumer persona? For example, the profile of average short-term loan user is1:

  • Average monthly income: $2,396
  • 59% renters; 41% homeowners
  • Most are subprime but over 30% are in near prime and better credit risk tiers2
  • Average over eight credit inquiries per year

Having insights like this can be quite useful for you to better serve — and understand — your customers. Imagine how much more advantageous it can be when you can more confidently predict the likelihood of first-party and early-payment defaults.

For example, you can evaluate those consumers with good payment track records or who have consistent payment behaviors. Conversely, you can suppress those consumers who are of higher risk or improve your price and decision accuracy.

Implementing a data-driven strategy

Just as importantly as what you do with this alternative data is where or when you use it along the short-term lending lifecycle. There are several stages where optimizing a data-driven strategy can prove beneficial:

  • Marketing: Evaluate balances, payment behaviors and account activity to specifically tailor offers to consumers and improve response rates
  • Underwriting: Use a score that's relevant for the short-term market and price short-term loans more effectively

As new data sources emerge, it is important for you to continue leveraging new methods to assess credit decisions that benefit both you and the consumer.

Alt Data:  The Key to Short-Term Lending Success

1 TransUnion Alternative Credit Database

2 VantageScore® 3.0 risk ranges; subprime= 300-600; near prime= 601-660

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