How Lenders Can Grow their Portfolio with Consumer Permissioned Data

Published: October 24, 2022 by Laura Burrows

Today’s top lenders use traditional and alternative credit data1 – or expanded Fair Credit Reporting Act (FCRA) regulated data – including consumer permissioned data, to enhance their credit decisioning. The ability to gain a more complete and timely understanding of consumers’ financial situation allows lenders to better gauge creditworthiness, make faster decisions and grow their portfolios without taking on additional risk.

Why lenders need to go beyond traditional credit data

Traditional credit data is — and will remain — important to understanding the likelihood that a borrower will repay a loan as agreed.

However, lenders who solely base credit decisions on traditional credit data and scores may overlook creditworthy consumers who don’t qualify for a credit score — sometimes called unscorable or credit invisible consumers.

Additionally, they may be spending time and money on manual reviews for applications that are low risk and should be automatically approved. Or extending offers that aren’t a good fit.

What is consumer permissioned data?

Consumer permissioned data includes transactional and account-level data, often from a bank, credit union or brokerage account, that a consumer gives permission to view and use in credit decisioning.

To access the data, lenders create secure connections to financial institutions or data aggregators. The process and approach give consumers the power to authorize (and later retract) access to accounts of their choosing — putting them in control of their personal information — while setting up security measures that keep their information secure.

In return for sharing access to their account information, consumers may qualify for more financial products and better terms on credit offers.

What does consumer permissioned data include?

Consumers can choose to share different types of information with lenders, including their account balances and transaction history. While there may be other sources for estimated or historic account-level data, permissioned data can be updated in real-time to give lenders the most accurate and timely view of a consumer’s finances.

There is also a wealth of information available within these transaction records. For example, consumers can use Experian Boost™ to get credit for non-traditional bills, including phone, utility, rent and streaming service payments.

These bills generally don’t appear in traditional credit reports and don’t impact every type of credit score. But seeing a consumer’s history of making these payments can be important for understanding their overall creditworthiness.

What are the benefits of leveraging consumer permissioned data?

You can incorporate consumer permissioned data into custom lending models, including the latest explainable machine learning models. As part of a loan origination system, the data can help with:

Portfolio expansion

Accessing and using new data can expand your lending universe in several ways. There are an estimated 28 million U.S. adults who don’t have a credit file at the bureaus, and an additional 21 million who have a credit file but lack enough information to be scorable by conventional scoring models.2 These people aren’t necessarily a credit risk — they’re simply an unknown. Increased insights can help you understand the real risk and make an informed decision.

Additionally, a deeper insight into consumers’ creditworthiness allows you to swap in applications that are a good credit risk. In other words, approving applications that you wouldn’t have been able to approve with an older credit decision process.

Increase financial inclusion

Many credit invisibles and thin-file applicants also fall into historically marginalized groups.3

  • Almost a third of adults in low-income neighborhoods are credit invisible.3
  • Black Americans are much more likely (1.8 times) to be credit invisible or unscorable than white Americans.3
  • Recent immigrants may have trouble accessing credit in the U.S., even if they had a good credit history in their home country.3

As a result, using consumer permissioned data to expand your portfolio can align with your financial inclusion efforts. It’s one example of how financial inclusion is good for business and society.

Enhance decisioning and minimize risk

Consumer-permissioned data can also improve and expand automated decisions, which can be important throughout the entire loan underwriting journey. In particular, you may be able to:

  • Verify income faster: By linking to consumers’ accounts and reviewing deposits, lenders can quickly verify their income and ability to pay.
  • Make better decisions: Consumer permissioned data also give lenders a new lens for understanding an applicant’s credit risk, which can let you say yes more often without taking on additional risk.
  • Process more applications: A better understanding of applicants’ credit risk can also decrease how many applications you send to manual review, which allows you to process more applications using the same resources.
  • Increase customer satisfaction: Put it all together, and faster decisions and more approvals lead to happier customers.

While consumer permissioned data can play a role in all of these, it’s not the only type of alternative data that lenders use to grow their portfolios.

What are other types of alternative data sources?

In addition to consumer permissioned data, alternative credit data can include information from:

  • Alternative financial services: Credit data from alternative financial services firms includes information on small-dollar installment loans, single-payment loans, point-of-sale financing, auto title loans and rent-to-own agreements.
  • Rental agreement: Rent payment data from landlords, property managers, collection companies and rent payment services.
  • Public records: Full-file public records go beyond what’s in a consumer’s credit report and can include professional and occupational licenses, property deeds and address history.

Read our latest report to learn more about accessing and using alternative credit data.

Why partner with Experian?

As an industry leader in consumer credit and data analytics, Experian is continuously building on its legacy in the credit space to help lenders access and use various types of alternative data. Along with Experian Boost™ for consumer permissioned data, Experian RentBureau and Clarity Services are trusted sources of alternative data that comply with the FCRA.

Experian also offers services for lenders that want help understanding and using the data for marketing, lending and collections. For originations, the Lift Premium™ credit model can use alternative credit data to score an estimated 96 percent of American adults — compared to 81 percent with conventional scores using traditional credit data. And the enhanced scoring capabilities could enable 6 million subprime applicants to qualify for prime or near-prime credit.3

The last word

Lenders are turning to new data sources to expand their portfolios and remain competitive. The results can provide a win-win, as lenders can increase approvals and decrease application processing times without taking on more risk. At the same time, these new strategies are helping financial inclusion efforts and allowing more people to access the credit they need.

1When we refer to “Alternative Credit Data,” this refers to the use of alternative data and its appropriate use in consumer credit lending decisions, as regulated by the Fair Credit Reporting Act. Hence, the term “Expanded FCRA Data” may also apply in this instance and both can be used interchangeably.
2 Oliver Wyman (2022). Driving Growth With Greater Credit Access
3 Ibid.

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