According to the Consumer Financial Protection Bureau (CFPB), more than 20 percent of Americans do not have a traditional credit score. This used to mean that those individuals would have limited access to credit and financial opportunities, as lenders were hesitant to take on the potential increased risk.
It doesn’t have to.
In today’s economy, alternative data, or information not typically included in traditional credit reports, can open doors for underserved individuals. And, for decades, Equifax has led the exploration of this powerful information source to help open up greater access to credit and provide financial inclusion to deserving individuals. Bank transaction data is something that Equifax pioneered through our credit bureau-exclusive relationship with Yodlee in 2019. Last year, we harnessed the power of the Equifax Cloud to introduce the groundbreaking Cashflow Insights solution.
Cashflow Insights empowers individuals to directly share their online bank account information, including balances, deposits and withdrawals from more than 7,700 participating U.S. financial institutions, to help create a more robust personal financial profile when applying for loans and other services.
Who can this help?
Imagine that you’re a student just entering the workforce for the first time. You may have savings, but likely don’t have a credit card and may not own a car or have other assets that trigger traditional credit file information. Or, perhaps you’re a gig worker who shares an apartment with multiple roommates. The lease, and monthly bills may not be in your name, but your bank account shows that money is regularly deposited into your account from your “gig” and regularly leaves your account as you pay roommates for your share of rent and utilities.
Equifax data shows that having bank transactions on all consumers could reduce the credit unscorable population by as much as 50 percent. We believe use of bank transaction data alone – without other alternative data assets – could increase prime or better consumers by nearly five million people. These numbers clearly show the impact that consumer-permissioned bank transaction data can have in providing a clearer picture of applicants.
"When a person is just starting out or goes through a major life event, credit data may not immediately or fully reflect their ability to pay or to safely take on new loans and services," said Mark Luber, Chief Product Officer for United States Information Solutions (USIS) at Equifax. "New credit opportunities are increasingly important in today's economic climate. Cashflow Insights is another way that Equifax is delivering differentiated data assets that provide consumers financial opportunity based on their unique profile."
Bank transaction data helps lenders understand how a consumer spends money, but also how often money comes in and assets available with which to pay bills. To share information, consumers simply select their bank, verify credentials and provide their consent for a prospective lender or service provider to access the information. Up to 24 months of bank transaction data is then quickly and securely shared and can be used to approve a loan or service application. The solution also helps applicants eliminate the time-consuming process of locating paper copies of historical bank statements.
The impact of bank transaction data? Equifax conducted an assessment into one lender’s ability to increase approvals without taking on more risk. With bank transaction data on 40 percent of the lender’s credit card applicants, the lender could increase credit card approvals by 8.2 percent without increasing its delinquency rate.
While credit reports remain a strong indicator of credit history and past financial reliability, alternative data has the potential to help responsibly expand consumer access to credit opportunity and support a more inclusive economy. Deeper data insights can bring lenders the decision intelligence they need to support consumers in new ways and enable them to improve the customer experience while maximizing growth.
For more information on Equifax and alternative data, please visit: https://www.equifax.com/business/cashflow-insights/