Data Driven Marketing

Enhance Prescreen and Keep Lending

Enhance Prescreen and Keep Lending

October 12, 2020 | Todd Hoover

This year has forced financial firms to reevaluate and alter their lending programs. Many lenders have had to work quickly to adapt in order to meet business and consumer needs. Now banks want to keep lending and need to be able to do so with confidence. Although, the financial impacts of the pandemic vary, they may negatively affect a significant number of consumers with poor credit history or little to no credit history. This group includes many consumers who may lack access to traditional lending options that drive establishing a credit score.

For lenders seeking to continue their Prescreen programs, these challenges present a complex situation. Lenders want to keep lending with confidence, but must carefully manage risk as the pandemic continues to unfold. The increased demand of digital interactions from consumers only further complicates this task by increasing the need to build or advance existing digital experiences.

Alternative credit data helps lenders broaden views and keep lending

Credit scores have long been, and still are, strong indicators of consumers’ financial behaviors. But it’s important to understand that credit scores don’t include every scenario related to borrowing money or paying bills. For instance, alternative finance companies offer quick access to cash that oftentimes doesn’t have an impact on consumers’ credit scores. Similarly, there are common expenses that may not be reflected in credit scores. Examples include common bills that typically go unreported, and thus don’t establish credit, such as cell phone bills and rent payments.

That’s where alternative credit data comes in.   With alternative credit data, lenders can gain deeper insight into consumers’ financial behaviors and better assess applicant risk -- outside the traditional credit file. Alternative credit data can allow lenders to better assess subprime or underbanked consumers seeking credit. This supports deeper lending to broader audiences, while minimizing incremental risk and better serving consumers during times of hardship.    

Here are two types of alternative credit data that can be combined with Prescreen to better inform lending strategies.

1. Insights on consumers who use specialty finance

Payday loans, lease-to-own, rent-to-own, installment loans, cash advances and other short-term loans are all often garnered from specialty finance companies. Although companies, such as alternative finance (Alt-Fi), payday lenders and retail organizations do the lending, they rarely report to the credit bureaus. Because of this such loans may not be a part of a consumer’s credit file.

For example, think of a low-income consumer that has had some credit troubles and as a result has a sub-prime credit rating. That person may turn to Alt-Fi companies for short-term, unsecured loans. Since this type of loan isn’t commonly reflected in the consumer’s credit file, lenders might want to know: How big and how frequent are the unsecured loans? Are payments on time and paid in full?

During a downturn, such as the current pandemic-induced recession, this type of scenario is likely on the rise. More prime consumers become subprime. And more consumers with little to no credit history, who may have been living paycheck-to-paycheck, find themselves unemployed and in need of cash. Leveraging near real-time insights on inquiries, tradelines and payment data in the specialty finance space can help lenders better evaluate non-traditional, credit-seeking consumers and determine appropriate loan amounts and terms. Combining this data with traditional credit-score based attributes allows Prescreen analytics to be even stronger.

2. Data on everyday bills: telecommunications, pay TV and utilities

When was the last time you met someone who didn’t own a mobile phone? Almost every adult in the U.S. has this expense. Yet this transactional data – whether consumers pay their mobile bill on time or not – usually does not impact credit scores. This is also true for pay TV, cable and utilities bills. Even if consumers continuously pay these bills past their due date, their credit scores are often unaffected.

Alternative data can show how consumers manage everyday bills. This can help lenders better assess the financial picture of a broader spectrum of consumers. Particularly those who may have little, no credit or damaged credit. How consumers handle these common bills can be very predictive of how they'll perform with future loans and credit needs. With additional knowledge of consumers’ current payment habits, lenders can more confidently assess new credit requests and lend to audiences that meet desired criteria.

To learn more, watch this short video about how alternative credit data can help you enhance your lending business. For more detailed information, view our on-demand Market Pulse webinar featuring a panel of industry experts detailing how layering in additional sources of data can reveal untapped opportunity. 

Todd Hoover

Todd Hoover

Marketing Practice Leader

As Equifax’s Marketing Practice Leader, Todd Hoover leads a consulting team that enables clients to build best-in-class, data-driven marketing capabilities and programs. He also leads go-to-market strategy and partner relationships for Equifax in the marketing space. Previously, Todd led global Sales and Business Devel[...]