Tag: credit invisibles

From awarding bonus points on food delivery purchases to incorporating social media into their marketing efforts, credit card issuers have leveled up their acquisition strategies to attract and resonate with today’s consumers. But as appealing as these rewards may seem, many consumers are choosing not to own a credit card because of their inability to qualify for one. As card issuers go head-to-head in the battle to reach and connect with new consumers, they must implement more inclusive lending strategies to not only extend credit to underserved communities, but also grow their customer base. Here’s how card issuers can stay ahead: Reach: Look beyond the traditional credit scoring system With limited or no credit history, credit invisibles are often overlooked by lenders who rely solely on traditional credit information to determine applicants’ creditworthiness. This makes it difficult for credit invisibles to obtain financial products and services such as a credit card. However, not all credit invisibles are high-risk consumers and not every activity that could demonstrate their financial stability is captured by traditional data and scores. To better evaluate an applicant’s creditworthiness, lenders can leverage expanded data sources, such as an individual’s cash flow or bank account activity, as an additional lens into their financial health. With deeper insights into consumers’ banking behaviors, card issuers can more accurately assess their ability to pay and help historically disadvantaged populations increase their chances of approval. Not only will this empower underserved consumers to achieve their financial goals, but it provides card issuers with an opportunity to expand their customer base and improve profitability. Connect: Become a financial educator and advocate Credit card issuers looking to build lifelong relationships with new-to-credit consumers can do so by becoming their financial educator and mentor. Many new-to-credit consumers, such as Generation Z, are anxious about their finances but are interested in becoming financially literate. To help increase their credit understanding, card issuers can provide consumers with credit education tools and resources, such as infographics or ‘how-to’ guides, in their marketing campaigns. By learning about the basics and importance of credit, including what a credit score is and how to improve it, consumers can make smarter financial decisions, boost their creditworthiness, and stay loyal to the brand as they navigate their financial journeys. Accessing credit is a huge obstacle for consumers with limited or no credit history, but it doesn’t have to be. By leveraging expanded data sources and offering credit education to consumers, credit card issuers can approve more creditworthy applicants and unlock barriers to financial well-being. Visit us to learn about how Experian is helping businesses grow their portfolios and drive financial inclusion. Visit us

Lenders are under pressure to improve access to financial services, but can it also be a vehicle for driving growth? With the global pandemic and social justice movements exposing societal issues of equity, financial institutions are being called upon to do their part to address these problems, too. Lenders are increasingly under pressure to improve access to the financial system and help close the wealth gap in America.  Specifically, there are calls to improve financial inclusion – the process of ensuring financial products and services are accessible and affordable to everyone. Financial inclusion seeks to remove barriers to accessing credit, which can ultimately help individuals and businesses create wealth and elevate communities. Activists and regulators have singled out the current credit scoring system as a significant obstacle for a large portion of U.S. consumers.  From an equity standpoint, tackling financial inclusion is a no-brainer: better access to credit allows more consumers to secure safer housing and better schools, which could lead to higher-paying jobs, as well as the ability to start businesses and get insurance. Being able to access credit in a regulated and transparent way underpins financial stability and prosperity for communities and is key to creating a stronger economic system. Beyond “doing the right thing," research shows that financial inclusion can also fuel business growth for lenders.  Get ahead of the game  There is mounting regulatory pressure to embrace financial inclusion, and financial institutions may soon need to comply with new mandates. Current lending practices overlook many marginalized communities and low-income consumers, and government agencies are seeking to change that.  Government agencies and organizations, such as the Consumer Financial Protection Bureau (CFPB) and Office of the Comptroller of the Currency (OCC), are requiring greater scrutiny and accountability of financial institutions, working to overhaul the credit reporting system to ensure fairness and equality.  As a lender, it makes good business sense to tackle this problem now. For starters, as more institutions embrace Corporate Social Responsibility (CSR) mandates—something that's increasingly demanded by shareholders and customers alike—financial inclusion is a natural place to start. It demonstrates a commitment to CSR principles and creates a positive brand built on equity.  Further, financial institutions that embrace these changes gain an early adopter advantage and can build a loyal customer base. As these consumers begin to build wealth and expand their use of financial products, lenders will be able to forge lifelong relationships with these customers.  Why not get a head start on making positive organizational change before the law compels it?  Grow your business (and profits)  To be sure, financial inclusion is a pressing moral imperative that financial institutions must address. But financial inclusion doesn't come at the expense of profit. It represents an enormous opportunity to do business with a large, untapped market without taking on additional risk. In many instances, unscorable and credit invisible consumers exhibit promising credit characteristics, which the conventional credit scoring system does not yet recognize.  Consider consumers coming to the U.S. from other countries. They may have good credit histories in their home countries but have not yet established a credit history here. Likewise, many young, emerging consumers haven't generated enough history to be categorized as creditworthy. And some consumers may simply not utilize traditional credit instruments, like credit cards or loans. Instead, they may be using non-bank credit instruments (like payday loans or buy-now-pay-later arrangements) but regularly make payments.  Ultimately, because of the way the credit system works, research shows that lenders are ignoring almost 20 percent of the U.S. population that don't have conventional credit scores as potential customers. These consumers may not be inherently riskier than scored consumers, but they often get labelled as such by the current credit scoring system. That's a major, missed opportunity!  Modern credit scoring tools can help fill the information gap and rectify this. They draw on wider data sources that include consumer activities (like rent, utility and non-bank loan payments) and provide holistic information to assist with more accurate decisioning. For example, Lift Premium™ can score 96 percent of Americans with this additional information—a vast improvement over the 81 percent who are currently scored with conventional credit data.1 By tapping into these tools, financial institutions can extend credit to underserved populations, foster consumer loyalty and grow their portfolio of profitable customers.  Do good for the economy  Research suggests that financial inclusion can provide better outcomes for both individuals and economies. Specifically, it can lead to greater investment in education and businesses, better health, lower inequality, and greater entrepreneurship.  For example, an entrepreneur who can access a small business loan due to an expanded credit scoring model is subsequently able to create jobs and generate taxable revenue. Small business owners spend money in their communities and add to the tax base – money that can be used to improve services and attract even more investment.  Of course, not every start-up is a success. But if even a portion of new businesses thrive, a system that allows more consumers to access opportunities to launch businesses will increase that possibility.  The last word  Financial inclusion promotes a stronger economy and thriving communities by opening the world of financial services to more people, which benefits everyone. It enables underserved populations to leverage credit to become homeowners, start businesses and use credit responsibly—all markers of financial health. That in turn creates generational wealth that goes a long way toward closing the wealth gap.  And widening the credit net also enables lenders to uncover new revenue sources by tapping new creditworthy consumers. Expanded data and advanced analytics allow lenders to get a fuller picture of credit invisible and unscorable consumers. Opening the door of credit will go a long way to establishing customer loyalty and creating opportunities for both consumers and lenders.  Learn more

Credit scores hold the key to many aspects of our financial lives. Whether qualifying for a mortgage, insurance, or a smartphone plan, financial institutions rely on credit reports — a document detailing how responsibly a person has used credit accounts in the past — to decide if they should approve your financing application. However, here's the problem: because today's scoring system leans heavily on a person’s credit history to generate a credit score, it leaves out large segments of the United States population from accessing credit. According to a recent Oliver Wyman report, an estimated 28 million U.S. consumers are considered ”credit invisible," while another 21 million are deemed "unscorable," meaning they don’t have the types of accounts that have been traditionally used to generate a credit score. Using the traditional credit-scoring formula, certain populations, such as communities of color and low-income consumers, are left behind. Now, times are changing. A modern approach to credit scoring can significantly improve the financial inclusion of millions of U.S. consumers and correct past and present inequities. ­Tapping into advanced technologies that leverage expanded data assets can produce powerful results. A cycle of exclusion: The limitations of conventional credit scoring A big part of the problem lies with how credit scores are calculated. Between payment history and length of accounts held, a consumer’s credit history accounts for 50 percent of a FICO credit score — the credit score used by 90 percent of top lenders for credit decisions. In other words, the credit system rewards people who already have (or can get) credit and penalizes those that cannot or don't yet have credit. For those who do not have credit, their financial behaviors ­— such as timely rental and utility payments, bank account data and payday loan installment payments — may not get reported to credit bureaus. As a result, consumers without a credit history may appear as credit invisible or unscorable because they don't have enough tradelines to generate a score. But they also can’t get credit to improve their score. It creates a cycle of exclusion that’s hard to break. Who gets left behind? According to the latest research, the limitations on the traditional credit scoring system disproportionately impact certain communities: Low-income: 30 percent of those in low-income neighborhoods are credit invisible, and 16 percent are considered unscorable, compared with just 4 percent and 5 percent, respectively, in upper-income neighborhoods.1 Communities of color: 27 percent of Black and 26 percent of Hispanic consumers are either credit invisible or unscorable, while only 16 percent of white consumers are.1 Immigrants: People who have recently arrived in the United States can lack a credit history here, even if they may have had one in their home country. Meanwhile, undocumented immigrants, who don’t have a Social Security number, can find it difficult to get a credit card or use other financial services. Young adults: 40 percent of credit invisibles in the U.S. are under the age of 25,1 with 65 percent of 18- to 19-year-olds lacking a credit score. Being labeled unscorable or credit invisible can hinder participation in the financial system and prevent populations from accessing the socioeconomic opportunities that go with it. Why are certain individuals and communities excluded? There are often complex — and valid — reasons for why many consumers are deemed unscorable or credit invisible. For example, newcomers may appear to be credit invisible because haven’t yet generated a credit history in the U.S., although they may have a solid score in their home country. Young consumers are also a common category of unscorable or credit invisible people, largely because they haven't acquired credit yet. Only 35 percent of 18- to 19-year-olds have a credit score, while 91 percent of 25- to 29-year-olds do. However, those who can quickly get a credit history typically come from wealthier households, where they can rely on a creditworthy guarantor to help them establish credit. Finally, some consumers have had negative experiences with the financial system. For instance, a prior default can make it difficult to access credit in the future, which can result in an extended period without credit, eventually leading to being labelled unscorable. Others may distrust the mainstream financial system and choose not to participate. Underpinning all this are racial disparities, with Black and Hispanic consumers being classified as unscorable and credit invisible at significantly higher rates than white and Asian consumers. According to the Consumer Financial Protection Bureau (CFPB), Black and Hispanic people, as well as low-income consumers, are more likely to have “scant or non-existent” credit histories. Financial inclusion is an equity issue Traditional credit scoring places big barriers on certain communities. Without access to credit, marginalized communities will continue to face challenges. They will lack the ability to purchase property, secure business and/or personal loans and deal with financial emergencies, further widening the wealth gap. Since credit scores are used to decide loan eligibility and what interest rate to offer, those with low or no credit rating tend to pay higher interest rates or are denied desired loans, which compounds financial difficulty. The impact is profound: a significant percentage of the population struggles to access basic financial services as well as life opportunities, such as financing an education or buying a home. Without the ability to generate a credit score, unscorable or credit invisible consumers often turn to less-regulated financial products (such as payday loans or buy now pay later agreements) and pay more for these, often locking them in a vicious cycle. Consumers who are credit invisible or unscorable often end up paying more for everyday transactions. They may be required to put up hefty deposits for housings and utilities. Auto and homeowners insurance, which use credit score as a factor in setting rates, may be more expensive too. Consider how much this could impede someone’s ability to save and build generational wealth. Financial inclusion seeks to bring more consumers into the financial system and enable access to safe, affordable financial services and products. With the right technology on your side, there are solutions that make it easier to do so. Tap into technology Banks, credit unions and other lending institutions are well positioned to move the needle on financial inclusion by embracing expanded definitions of creditworthiness. By seeking out expanded FCRA-regulated data with wider sources of financial information, financial institutions can find a vast untapped pool of creditworthy consumers to bring into the fold. Technology makes achieving this goal easier than ever. New credit scoring tools, like Lift Premium™, can give lenders a more complete view of the consumer to use for credit decisioning. It combines traditional credit data with expanded FCRA-regulated data sources, helping lenders uncover more creditworthy consumers. Lift Premium can score 96 percent of U.S. consumers, compared to just 81 percent that conventional scoring systems do now. By applying machine learning to expanded data sets, Lift Premium can build a fuller and more accurate view of consumer behaviors. Moreover, the 6 million consumers whose scores are now considered subprime could be upgraded to prime or near-prime by analyzing the expanded data that Lift Premium uses. The opportunity presented by financial inclusion is significant. Imagine being able to expand your portfolio of creditworthy borrowers by almost 20 percent. The last word With a renewed focus on social justice, it’s no surprise that regulators and activists alike are turning their attention to financial inclusion. A credit-scoring system that allows lenders to better evaluate more consumers can give more people access to transparent, cheaper and safer financial products and the socioeconomic benefits that go along with them. New models and data assets offer additional data points into the credit scoring system and make it possible for lenders to expand credit to a greater number of consumers, in the process creating a fairer system than exists today. Early adopter lenders who embrace financial inclusion now can gain a first-mover advantage and build a loyal customer base in a competitive market. Learn more Download white paper 1Oliver Wyman white paper, “Financial Inclusion and Access to Credit,” January 12, 2022. 

Reporting positive rental payment histories to credit bureaus has been in the news more than once in recent months. In early November, Freddie Mac announced it will provide closing cost credits on multifamily loans for owners of apartment properties who agree to report on-time rental payments. In July, California began requiring multifamily properties that receive federal, state or local subsidies to offer each resident in a subsidized apartment home the option of having their rental payments reported to a major credit bureau. And while reporting positive rental payments to credit bureaus may not yet be part of the multifamily mainstream, forward-thinking operators have already been doing it for years. Below is a quick primer on this practice and its benefits. Why do renters need this service? A strong, positive credit history is critical to securing car loans, credit cards and mortgages – and doing so at favorable interest rates. Unfortunately, unlike homeowners, apartment residents traditionally have not seen a positive impact on their credit reports for making their rent payments on time and in full, even though these payments can be very large and usually make up their largest monthly expense. In fact, renters are seven times more likely to be credit invisible – meaning they lack enough credit history to generate a credit score – than homeowners, according to the Credit Builders Alliance (CBA). This especially impacts lower-income households and communities of color. Renters make up approximately 60% of the U.S. households that make less than $25,000 a year, while Black and Hispanic households are twice as likely as White households to rent, according to the CBA. Experian is among the organizations working with the Consumer Data Industry Association (CDIA) on the association's Rental Empowerment Project. Through the REP, CDIA and its partner organizations seek to increase the reporting of rental payment history information by landlords and property managers through the development and adoption of a uniform, universal data reporting format for landlords and property managers to use. How does reporting positive rental payments to credit bureaus have an impact on a resident's credit history? The impact on any individual renter will obviously vary because of a wide array of factors. But to get some sense of the potential impact reporting on-time rental payments can have, consider the results of the CBA's Power of Rent Reporting pilot. In that test, 100% of renters who started off with no credit score became scorable at the near prime or prime level. In addition, residents with subprime scores saw their score increase by an average of 32 points. How does reporting positive rent payments benefit rental-housing owners and operators? Reporting positive rental payments provides residents with a powerful incentive to pay their rent on time and in full. And because there’s not a huge percentage of apartment communities currently doing this, helping residents build their credit history in this manner can offer a real competitive advantage. Learn more

Nearly 28 million American consumers are credit invisible, and another 21 million are unscorable.1 Without a credit report, lenders can’t verify their identity, making it hard for them to obtain mortgages, credit cards and other financial products and services. To top it off, these consumers are sometimes caught in cycles of predatory lending; they have trouble covering emergency expenses, are stuck with higher interest rates and must put down larger deposits. To further our mission of helping consumers gain access to fair and affordable credit, Experian recently launched Experian GOTM, a first-of-its-kind program aimed at helping credit invisibles take charge of their financial health. Supporting the underserved Experian Go makes it easy for credit invisibles and those with limited credit histories to establish, use and grow credit responsibly. After authenticating their identity, users will have their Experian credit report created and will receive educational guidance on improving their financial health, including adding bill payments (phone, utilities and streaming services) through Experian BoostTM. As of January 2022, U.S. consumers have raised their scores by over 87M total points with Boost.2 From there, they’ll receive personalized recommendations and can accept instant card offers. By leveraging Experian Go, disadvantaged consumers can quickly build credit and become scorable. Expanding your lending portfolio So, what does this mean for lenders? With the ability to increase their credit score (and access to financial literacy resources), thin-file consumers can more easily meet lending eligibility requirements. Applicants on the cusp of approval can move to higher score bands and qualify for better loan terms and conditions. The addition of expanded data can help you make a more accurate assessment of marginal consumers whose ability and willingness to pay aren’t wholly recognized by traditional data and scores. With a more holistic customer view, you can gain greater visibility and transparency around inquiry and payment behaviors to mitigate risk and improve profitability. Learn more Download white paper 1Data based on Oliver Wyman analysis using a random sample of consumers with Experian credit bureau records as of September 2020. Consumers are considered ‘credit invisible’ when they have no mainstream credit file at the credit bureaus and ‘unscorable’ when they have partial information in their mainstream credit file, but not enough to generate a conventional credit score. 2https://www.experian.com/consumer-products/score-boost.html

Credit plays a vital role in the lives of consumers and helps them meet important milestones – like getting a car and buying their own home. Unfortunately, not every creditworthy individual has equal access to financial services. In fact, 28 million adult Americans are credit invisible and another 21 million are considered unscorable.1 By leveraging expanded data sources, you can gain a more complete view of creditworthiness, make better decisions and empower consumers to more easily access financial opportunities. The state of credit access Credit is part of your financial power and helps you get the things you need. So, why are certain consumers excluded from the credit economy? There’s a host of reasons. They might have limited or no credit history, have dated or negative information within their credit file or be part of a historically disadvantaged group. For example, almost 30% of consumers in low-income neighborhoods are credit invisible and African and Hispanic Americans are less likely than White Americans to have access to mainstream financial services.2 By gaining further insight into consumer risk, you can facilitate first and second chances for borrowers who are increasingly being shut out of traditional credit offerings. Greater data, greater insights, greater growth Expanding access to credit benefits consumers and lenders alike. With a bigger pool of qualified applicants, you can grow your portfolio and help your community. The trick is doing so while continuing to mitigate risk – enter expanded data. Expanded data includes non-credit payments, demand deposit account (DDA) transactions, professional certifications, and foreign credit history, among other things. Using these data sources can drive greater visibility and transparency around inquiry and payment behaviors, enrich decisions across the entire customer lifecycle and allow lenders to better meet the financial needs of their current and future customers. Read our latest white paper for more insight into the vital role credit plays within our society and how you can increase financial access and opportunities in the communities you serve. Download now 1Data based on Oliver Wyman analysis using a random sample of consumers with Experian credit bureau records as of September 2020. Consumers are considered ‘credit invisible’ when they have no mainstream credit file at the credit bureaus and ‘unscorable’ when they have partial information in their mainstream credit file, but not enough to generate a conventional credit score. 2Credit Invisibles, The CFPB Office of Research, May 2015.

Financial inclusion is a challenge, that, while not new, has become ever more apparent over the last year. The inequities and inequalities in our society, exasperated by the COVID-19 pandemic, which disproportionately affected underserved populations, have amplified the challenge lenders and others in the financial services industry face in fostering financial inclusion. As a result, there is an increased focus and importance on diversity, equity and inclusion (DEI) and having the ability to assess creditworthiness of overlooked and ‘invisible’ consumers. In a recent webinar, we sat down with Sarah Davies, Head of Data Analytics at Nova Credit, and a panel of Experian experts including Wil Lewis, Chief Diversity, Equity and Inclusion Officer, Alpa Lally, Vice President of Product Management, and Greg Wright, Product Chief Officer, to explore the topic of DEI, what best practices exist to break down financial inclusion barriers and move financial access forward for all, and real-takeaway strategies and capabilities designed for fintechs and other financial institutions to leverage for lending deeper. Below are a few key perspectives from our speakers: What barriers to access are there for credit across different groups of people? [WL]: There are many barriers to financial inclusion, especially for underserved communities. The first of which is lack of awareness and lack of education about credit and how it impacts financial access – from obtaining loans, buying a first home, a new car and more. Not every American has someone in their life to teach and provide coaching on credit responsibility and how to be financially literate. [AL]: Historically, credit, wealth and health inequalities have all contributed to financial disparities, and as a result, have created an underrepresentation of marginalized communities in the current credit ecosystem. That’s compounded by today’s ecosystem where consumer underwriting favors those with established thick-file credit histories with minimal delinquencies, particularly in the last 24 months. So, all things being equal, additional points distributed to elevate scores are given to consumers that are maintaining low revolving debt. This poses credit barriers for those starting out new to credit, or even to immigrants coming into a new country who don’t have an established credit history.   What role could the credit industry play in healing the financial disparities created by the COVID-19 pandemic? [WL]: Our opportunity lies in meeting consumers where they are today. COVID-19 has spotlighted economic and social disparities in a way it hasn’t been done before. At the same time, it illustrated how the inability of some groups to access financial services requires meaningful solutions, quickly. Historically, organizations have been known to look at this in a traditional way: meaning “we are the organization, consumers come to us and we can tell you what you can and can’t do.” We need to shift our focus to how we can provide consumers with tools, technology and machine learning (ML) that are available to empower them. [SD]: One of the lessons we’ve learned from COVID, is that we need to be able to get to the marketplace fast in order to respond to the economic conditions. Fintechs have been very effective at this and it has shown through the approach they’ve taken towards immediacy in identifying, developing and distributing solutions. With consumers in a stressed position, it’s incumbent upon us, as the industry, to deliver consumer-centric options and opportunities in an efficient manner rather than having our consumers sit around waiting for them.   Are there solutions to help ensure we are lending deeper and serving thin-filed consumers? [AL]: At its core, data – not limited to only traditional credit data – that can be decisioned on, can help enrich financial inclusion. Alternative data, or expanded FCRA data, means that the data is displayable, disputable and correctable by the consumer. We recognize that traditional credit is still an effective way to assess a consumer’s credit worthiness. However, expanded FCRA data includes data points from rental, video streaming, all other industry sectors to help provide a 360 view of the consumer with additional insights - whether you are a thick-file consumer, thin-file consumer, or credit invisible. Through these different various data assets paired with advanced analytics and ML, we now have a mechanism to make sure consumers go from credit invisible to visible – and scorable. Leveraging Experian Boost and Experian Lift scores can do just that. [SD]: Expanded FCRA data is powerful and vital for helping the consumer. In addition, we are now in a place where the consumer can take on the responsibility and accountability for giving permission to include their data in the credit score. You’re putting the consumers in the driver seat, and with that, we are dissolving the psychological barriers that consumers may have had previously around their credit score being out of their control. As a player in the financial services space, we can put out as much data as we want, but it’s about engaging the consumer, sharing with them how it’s safe to share their data, and what the benefits of doing so are.   Are there tangible and intangible benefits of DEI that companies can realize when they have formal DEI programs in place? [WL]: Often times, when we think of lending, we talk about it from the standpoint of our business – ‘what are we doing for our customers, how are we helping consumers who are going to a institution for a loan.’ What we typically forget about is our own backyard. Every organization has employees who are at different points in their credit journey. How often do we talk directly to our employees and give them tools and details that may help them, their family member, or neighbor? As I think about DEI, it’s about involving folks inside your company to continue moving financial inclusion forward. As for an intangible benefit, when doing work in DEI and driving impact, you’re also reducing negative reputational risk. Reputable brands are invaluable, as you begin to make and show an impact, consumers begin to trust you. [AL]: Brand and reputation is huge in today’s world. We are starting to see a shift in consumers selecting certain institutions to work with, not just because of the services provided, but because it’s based on the brand and what they stand for. You as an institution are doing financial inclusion and you’re living up to it. You are truly embarking internally and externally on this initiative and it adds weights on the products and solutions that you sell. For consumers, that may be very important.   What does the future look like relative to financial inclusion? [WL]: It’s a world where all of us play a role in - no matter where you are in the organization. It’s all of our jobs and responsibility to talk about it to our fellow neighbor, consumer, and direct them to tools that will help them. [SD]: We no longer need to justify why financial inclusion is necessary. We’ve got all the data we need. Tools and mechanisms for organizations and consumers are almost universally available. The go-forward view requires all ‘players’ within the space to aggressively embrace these tools and data and start sharing and applying them across all markets and verticals. There’s no longer a reason not to be able to underwrite somebody with a thin file or marginal set of data. We have everything in place at this point. [AL]: It’s all our jobs. I think we have to put a lot of importance on our younger leaders and colleagues to carry our initiatives forward, so we are truly inclusive. We have just started taking the initial steps and we’ve made good progress, but we need to continue to make progress. In the future, I hope to see all that are younger take this forward and drive financial inclusion for all across the spectrum. Watch the full session to hear more of the engaging and timely discussion. Access the recording To learn more about how Experian is committed to advancing financial inclusion, please visit Experian’s Inclusion Forward resources page. For Fintechs looking to partner with Experian on marketplace lending solutions, explore our solutions here.

Millions of consumers lack credit history and/or have difficulty obtaining credit from mainstream financial institutions. As a result, the use of expanded Fair Credit Reporting Act (FCRA) – or alternative – data has continued to gain popularity among lenders and financial intuitions to enrich decisions across the entire lending lifecycle to meet the financial needs of their consumers. Experian presented in a recent webinar hosted by AFSA, where Alpa Lally, Vice President of Product Management, and David Elmore, Automotive Solutions Consultant, had a chance to speak about the benefits of FCRA data, and ways lenders can leverage this data to ease access to credit for “invisible” and below prime consumers. Watch the full webinar, “FCRA Data: The Key to Unlocking Credit Universe” and learn more about: How expanded FCRA data is being used throughout the lending lifecycle The benefits of leveraging FCRA data including providing a more holistic view of a consumer’s credit profile and behavior beyond financial services, leading to smarter, more informed lending decisions The lift FCRA data can offer when augmented with traditional credit data This webinar is a part of AFSA’s partner webinar series. To learn more about FCRA data and explore related content, please visit our FCRA Alternative Credit Data Resources Page. Learn More About FCRA-Alternative Credit Data

Today’s lending market has seen a significant increase in alternative business lending, with companies utilizing new data assets and technology. As the lending landscape becomes increasingly competitive, consumers have more choices than ever when it comes to lending products. To drive profitable growth, lenders must find new ways to help applicants gain access to the loans they need. How Spring EQ is leveraging Experian BoostTM Home equity lender Spring EQ turned to Experian’s first-of-its-kind financial tool that empowers consumers to add positive payments directly into their credit file to assist applicants with attaining the best loan opportunities and rates. By using Experian BoostTM, which captures the value of consumer’s utility and telecom trade lines, in their current lending process, Spring EQ can help applicants near approval or risk thresholds move to higher risk tiers and qualify for better loan terms and conditions. Driving growth with consumer-permissioned data Over 40 million consumers in the U.S. either have no credit file or have insufficient information in their files to generate a traditional credit score. Consumer-permissioned data empowers these individuals to leverage their online financial data and payment histories to gain better access to loans and other financial services while providing lenders with a more comprehensive view of their creditworthiness. According to Experian research, 70% of consumers see the benefits of sharing additional financial information and contributing positive payment history to their credit file if it increases their odds of approval and helps them access more favorable credit terms. Read our case study for more insight on using Experian Boost to: Make better lending decisions Offer or underwrite credit to more people Promote the right credit products Increase conversion and utilization rates Read case study Learn more about Experian Boost

In today’s rapidly changing economic environment, the looming question of how to reduce portfolio volatility while still meeting consumers' needs is on every lender’s mind. So, how can you better asses risk for unbanked consumers and prime borrowers? Look no further than alternative credit data. In the face of severe financial stress, when borrowers are increasingly being shut out of traditional credit offerings, the adoption of alternative credit data allows lenders to more closely evaluate consumer’s creditworthiness and reduce their credit risk exposure without unnecessarily impacting insensitive or more “resilient” consumers. What is alternative credit data? Millions of consumers lack credit history or have difficulty obtaining credit from mainstream financial institutions. To ease access to credit for “invisible” and subprime consumers, financial institutions have sought ways to both extend and improve the methods by which they evaluate borrowers’ risk. This initiative to effectively score more consumers has involved the use of alternative credit data.1 Alternative credit data is FCRA-regulated data that is typically not included in a traditional credit report and helps lenders paint a fuller picture of a consumer, so borrowers can get better access to the financial services they need and deserve. How can it help during a downturn? The economic environment impacts consumers’ financial behavior. And with more than 100 million consumers already restricted by the traditional scoring methods used today, lenders need to look beyond traditional credit information to make more informed decisions. By pulling in alternative credit data, such as consumer-permissioned data, rental payments and full-file public records, lenders can gain a holistic view of current and future customers. These insights help them expand their credit universe, identify potential fraud and determine an applicant’s ability to pay all while mitigating risk. Plus, many consumers are happy to share additional financial information. According to Experian research, 58% say that having the ability to contribute positive payment history to their credit files makes them feel more empowered. Likewise, many lenders are already expanding their sources for insights, with 65% using information beyond traditional credit report data in their current lending processes to make better decisions. By better assessing risk at the onset of the loan decisioning process, lenders can minimize credit losses while driving greater access to credit for consumers. Learn more 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.

Retailers are already starting to display their Christmas decorations in stores and it’s only early November. Some might think they are putting the cart ahead of the horse, but as I see this happening, I’m reminded of the quote by the New York Yankee’s Yogi Berra who famously said, “It gets late early out there.” It may never be too early to get ready for the next big thing, especially when what’s coming might set the course for years to come. As 2019 comes to an end and we prepare for the excitement and challenges of a new decade, the same can be true for all of us working in the lending and credit space, especially when it comes to how we will approach the use of alternative data in the next decade. Over the last year, alternative data has been a hot topic of discussion. If you typed “alternative data and credit” into a Google search today, you would get more than 200 million results. That’s a lot of conversations, but while nearly everyone seems to be talking about alternative data, we may not have a clear view of how alternative data will be used in the credit economy. How we approach the use of alternative data in the coming decade is going to be one of the most important decisions the lending industry makes. Inaction is not an option, and the time for testing new approaches is starting to run out – as Yogi said, it’s getting late early. And here’s why: millennials. We already know that millennials tend to make up a significant percentage of consumers with so-called “thin-file” credit reports. They “grew up” during the Great Recession and that has had a profound impact on their financial behavior. Unlike their parents, they tend to have only one or two credit cards, they keep a majority of their savings in cash and, in general, they distrust financial institutions. However, they currently account for more than 21 percent of discretionary spend in the U.S. economy, and that percentage is going to expand exponentially in the coming decade. The recession fundamentally changed how lending happens, resulting in more regulation and a snowball effect of other economic challenges. As a result, millennials must work harder to catch up financially and are putting off major life milestones that past generations have historically done earlier in life, such as homeownership. They more often choose to rent and, while they pay their bills, rent and other factors such as utility and phone bill payments are traditionally not calculated in credit scores, ultimately leaving this generation thin-filed or worse, credit invisible. This is not a sustainable scenario as we enter the next decade. One of the biggest market dynamics we can expect to see over the next decade is consumer control. Consumers, especially millennials, want to be in the driver’s seat of their “credit journey” and play an active role in improving their financial situations. We are seeing a greater openness to providing data, which in turn enables lenders to make more informed decisions. This change is disrupting the status quo and bringing new, innovative solutions to the table. At Experian, we have been testing how advanced analytics and machine learning can help accelerate the use of alternative data in credit and lending decisions. And we continue to work to make the process of analyzing this data as simple as possible, making it available to all lenders in all verticals. To help credit invisible and thin-file consumers gain access to fair and affordable credit, we’ve recently announced Experian Lift, a new suite of credit score products that combines exclusive traditional credit, alternative credit and trended data assets to create a more holistic picture of consumer creditworthiness that will be available to lenders in early 2020. This new Experian credit score may improve access to credit for more than 40 million credit invisibles. There are more than 100 million consumers who are restricted by the traditional scoring methods used today. Experian Lift is another step in our commitment to helping improve financial health of consumers everywhere and empowers lenders to identify consumers who may otherwise be excluded from the traditional credit ecosystem. This isn’t just a trend in the United States. Brazil is using positive data to help drive financial inclusion, as are others around the world. As I said, it’s getting late early. Things are moving fast. Already we are seeing technology companies playing a bigger role in the push for alternative data – often powered by fintech startups. At the same time, there also has been a strong uptick in tech companies entering the banking space. Have you signed up for your Apple credit card yet? It will take all of 15 seconds to apply, and that’s expected to continue over the next decade. All of this is changing how the lending and credit industry must approach decision making, while also creating real-time frictionless experiences that empower the consumer. We saw this with the launch of Experian Boost earlier this year. The results speak for themselves: hundreds of thousands of previously thin-file consumers have seen their credit scores instantly increase. We have also empowered millions of consumers to get more control of their credit by using Experian Boost to contribute new, positive phone, cable and utility payment histories. Through Experian Boost, we’re empowering consumers to play an active role in building their credit histories. And, with Experian Lift, we’re empowering lenders to identify consumers who may otherwise be excluded from the traditional credit ecosystem. That’s game-changing. Disruptions like Experian Boost and newly announced Experian Lift are going to define the coming decade in credit and lending. Our industry needs to be ready because while it may seem early, it’s getting late.

Alex Lintner, Group President at Experian, recently had the chance to sit down with Peter Renton, creator of the Lend Academy Podcast, to discuss alternative credit data,1 UltraFICO, Experian Boost and expanding the credit universe. Lintner spoke about why Experian is determined to be the leader in bringing alternative credit data to the forefront of the lending marketplace to drive greater access to credit for consumers. “To move the tens of millions of “invisible” or “thin file” consumers into the financial mainstream will take innovation, and alternative data is one of the ways which we can do that,” said Lintner. Many U.S. consumers do not have a credit history or enough record of borrowing to establish a credit score, making it difficult for them to obtain credit from mainstream financial institutions. To ease access to credit for these consumers, financial institutions have sought ways to both extend and improve the methods by which they evaluate borrowers’ risk. By leveraging machine learning and alternative data products, like Experian BoostTM, lenders can get a more complete view into a consumer’s creditworthiness, allowing them to make better decisions and consumers to more easily access financial opportunities. Highlights include: The impact of Experian Boost on consumers’ credit scores Experian’s take on the state of the American consumer today Leveraging machine learning in the development of credit scores Expanding the marketable universe Listen now Learn more about alternative credit data 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.

Every morning, I wake up and walk bleary eyed to the bathroom, pop in my contacts and start my usual routine. Did I always have contacts? No. But putting on my contacts and seeing clearly has become part of my routine. After getting used to contacts, wearing glasses pales in comparison. This is how I view alternative credit data in lending. Are you having qualms about using this new data set? I get it, it’s like sticking a contact into your eye for the first time: painful and frustrating because you’re not sure what to do. To relieve you of the guesswork, we’ve compiled the top four myths related to this new data set to provide an in-depth view as to why this data is an essential supplement to your traditional credit file. Myth 1: Alternative credit data is not relevant. As consumers are shifting to new ways of gaining credit, it’s important for the industry to keep up. These data types are being captured by specialty credit bureaus. Gone are the days when alternative financing only included the payday store on the street corner. Alternative financing now expands to loans such as online installment, rent-to-own, point-of-sale financing, and auto-title loans. Consumers automatically default to the financing source familiar to them – which doesn’t necessarily mean traditional financial institutions. For example, some consumers may not walk into a bank branch anymore to get a loan, instead they may search online for the best rates, find a completely digital experience and get approved without ever leaving their couches. Alternative credit data gives you a lens into this activity. Myth 2: Borrowers with little to no traditional credit history are high risk. A common misconception of a thin-file borrower is that they may be high risk. According to the CFPB, roughly 45 million Americans have little to no credit history and this group may contain minority consumers or those from low income neighborhoods. However, they also may contain recent immigrants or young consumers who haven’t had exposure to traditional credit products. According to recent findings, one in five U.S. consumers has an alternative financial services data hit– some of these are even in the exceptional or very good credit segments. Myth 3: Alternative credit data is inaccurate and has poor data quality. On the contrary, this data set is collected, aggregated and verified in the same way as traditional credit data. Some sources of data, such as rental payments, are monthly and create a consistent look at a consumer’s financial behaviors. Experian’s Clarity Services, the leading source of alternative finance data, reports their consumer information, which includes application information and bank account data, as 99.9% accurate. Myth 4: Using alternative credit data might be harmful to the consumer. This data enables a more complete view of a consumer’s credit behavior for lenders, and provides consumers the opportunity to establish and maintain a credit profile. As with all information, consumers will be assessed appropriately based on what the data shows about their credit worthiness. Alternative credit data provides a better risk lens to the lender and consumers may get more access and approval for products that they want and deserve. In fact, a recent Experian survey found 71% of lenders believe alternative credit data will help consumers who would have previously been declined. Like putting in a new pair of contact lenses the first time, it may be uncomfortable to figure out the best use for alternative credit data in your daily rhythm. But once it’s added, it’s undeniable the difference it makes in your day-to-day decisions and suddenly you wonder how you’ve survived without it so long. See your consumers clearly today with alternative credit data. Learn More About Alternative Credit Data

On June 7, the Consumer Financial Protection Bureau (CFPB) released a new study that found that the ways “credit invisible” consumers establish credit history can differ greatly based on their economic background. The CFPB estimated in its May 2015 study "Data Point: Credit Invisibles" that more than 45 million American consumers are credit invisible, meaning they either have a thin credit file that cannot be scored or no credit history at all. The new study reviewed de-identified credit records on more than one million consumers who became credit visible. It found that consumers in lower-income areas are 240 percent more likely to become credit visible due to negative information, such as a debt in collection. The CFPB noted consumers in higher-income areas become credit visible in a more positive way, with 30 percent more likely to become credit visible by using a credit card and 100 percent more likely to become credit visible by being added as a co-borrower or authorized user on someone else’s account. The study also found that the percentage of consumers transitioning to credit visibility due to student loans more than doubled in the last 10 years. CFPB’s research highlights the need for alternative credit data The new study demonstrates the importance of moving forward with inclusion of new sources of high-quality financial data — like on-time payment data from rent, utility and telecommunications providers — into a consumer’s credit file. Experian recently outlined our beliefs on the issue in comments responding to the CFPB’s Request for Information on Alternative Data. As a brand, we have a long history of using alternative credit data to help lenders make better lending decisions. Extensive research has shown that there is an immense opportunity to facilitate greater access to fair and affordable credit for underserved consumers through the inclusion of on-time telecommunications, utility and rental data in credit files. While these consumers may not have a traditional credit history, many make on-time payments for telephone, rent, cable, power or mobile services. However, this data is not typically being used to enhance traditional credit files held by the nationwide consumer reporting agencies, nor is it being used in most third-party or custom credit scoring models. Further, new advances in financial technology and data analytics through account aggregation platforms are also integral to the credit granting process and can be applied in a manner to broaden access to credit. Experian is currently using account aggregation software to obtain consumer financial account information for authentication and income verification to speed credit decisions, but we are looking to expand this technology to increase the collection and utilization of alternative data for improving credit decisions by lenders. Policymakers should act to help credit invisible consumers While Experian continues to work with telecommunications and utility companies to facilitate the furnishing of on-time credit data to the nationwide consumer reporting agencies, regulatory barriers continue to exist that deter utility and telecommunications companies from furnishing on-time payment data to credit bureaus. To help address this issue, Congress is currently considering bipartisan legislation (H.R. 435, The Credit Access and Inclusion Act of 2017) that would amend the FCRA to clarify that utility and telecommunication companies can report positive credit data, such as on-time payments, to the nation' s credit reporting bureaus. The legislation has bipartisan support in Congress and Experian encourages lawmakers to move forward with this important initiative that could benefit tens of millions of American consumers. In addition, Experian believes policymakers should more clearly define the term alternative data. In public policy debates, the term "alternative data" is a broad term, often lumping data sources that can or have been proven to meet regulatory standards for accuracy and fairness required by both the Fair Credit Reporting Act and the Equal Credit Opportunity Act with data sources that cannot or have not been proven to meet these standards. In our comment letter, Experian encourages policymakers to clearly differentiate between different types of alternative data and focus the consumer and commercial credit industry on public policy recommendations that will increase the use of those sources of data that have or can be shown to meet legal and societal standards for accuracy, validity, predictability and fairness. More info on Alternative Credit Data More Info on Alternative Financial Services

Experian shares five trends and twists coming over the next 12 months, that could push new boundaries and in many cases improve the customer experience as it pertains to the world of credit and finance.