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The virtuous ecosystem of credit
We are all familiar these days with the message from regulators, legislators and consumer advocates that consumer fairness in the lending environment and consumer data protection are of paramount importance. Immediately behind these objectives in the public mind (or ahead, depending on who is talking) is the need for financial institutions to grow lending as part of the establishment of a stronger economic recovery. In addition, always present is the need for this lending to take place profitably for shareholders and the stability of the banking system.

It is easy to understand how these pressures have affected today’s bankers. But there is good news that often seems to go unnoticed in the current debate. Together, we have spent the better part of the past 20 years building a virtuous ecosystem that uses credit information as a transparent means of communicating among bankers, consumers and the market to enhance lending velocity and security. In many respects, what we have built together has been a resounding success. While regulators and legislators are asking for tweaks to the system, they are just adjustments to a successful process that is answering the majority of the needs of every constituent in the system.

This is important because we stand ahead of most other markets where information mobility, transparency and security are now becoming key areas of focus. Consider newer ecosystems created by social networks or other less-tested environments — and the ground they still must cover in the coming years (or decades) to deliver transparency and protection to their constituents.

So let’s start by describing how the “virtuous ecosystem of credit” works to support the market. Over the past five years, consumers have moved aggressively to access their own credit information and credit scores. This means that the information is now flowing to and from all the participants in the lending market (i.e., it is an ecosystem). The sharing of this information has resulted in more informed consumers who are better equipped to represent themselves in credit-related discussions and are now empowered to become more creditworthy (i.e., the ecosystem is virtuous). This makes for better conversations between consumers and lenders and has empowered consumers to make financial decisions with an eye to improving their credit score.

Next, consider the easy wins that are within our reach to connect the dots and create a better lending environment for all. Consumers are feeling the effects of the recent credit tightening in many ways they never imagined. They have a number of questions but not many places they can turn to for accurate and trusted information on their current credit situation. They lack a starting point for determining the steps to begin improving their credit to achieve their short-, medium- and long-term goals. Consumers who have both knowledge and a plan around their credit situation will be more confident and better customers in the future.

Here at Experian, we have developed a package of services that will assist our commercial partners in bringing credit education and credit mentoring to consumers. These one-on-one education and mentoring sessions provide consumers with the insight required to more effectively make decisions that impact their credit life. We believe that the lending institutions providing these services will see a stronger affinity between them and their customers and will improve the credit quality of their portfolio (which will have a positive impact in multiple ways).

We believe that our industry is faced with a great opportunity: Leverage the virtuous ecosystem of credit to improve credit quality, enhance customer loyalty and empower consumers. Consumer education is a great next step.

For more information, contact your local Experian representative by calling 1 888 414 1120.

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