If you’re a non-prime lender who still has not incorporated alternative credit data as part of your customer acquisition strategy, this blog is for you.
You probably already know that more of your competitors continue to invest in the following premise:
Alternative credit data provides significant visibility into critical non-prime consumer information, enabling improved decisioning on loan applications.
You probably already know that alternative credit data is used not only for supplementing traditional credit scores; it’s also frequently used as a primary decisioning resource.
You probably already know that nontraditional bureau data can identify preferred applicants, despite a credit-challenged score.
But did you know that entrepreneurs from Fintech may be eyeballing some of your preferred borrowers?
Empowered Consumers Are Driving Non-Prime Lending Competition
This year’s recently released Alternative Financial Services Lending Trends report, featuring five years of data from the largest specialty credit bureau, shows some evidence that a percentage of non-prime consumer scores are improving. And, consumer behavior indicates fluidity in product usage.
Seven percent of 2017 alternative financial service (AFS) borrowers switched to traditional lending in 2018 (pg14). Among AFS online borrowers in 2018, more than 50 percent were new to the channel (pg14). Consumers new to alternative financial services in 2018 have slightly higher credit scores than those who previously applied for loans in this market.
These findings may indicate a consumer demographic that is willing to migrate to new or different lending channels. A significant percentage of these consumers will have credit scores hovering near prime, presenting a welcome audience for Fintech lenders to present very competitive product offerings.
Supplementing Credit Files, Expanding Opportunities, Boosting Customer Acquisition
Lacking a credit history on student loans, mortgages, car payments and credit cards, millions of non-prime consumers get overlooked when applying for mainstream loans. But that’s changing as traditional credit reporting bureaus like Experian have invested in alternative ways to score more consumers.
In addition to using alternative financial credit data from Experian’s Clarity Services, featuring the most non-prime bureau data for consumers in the United States, credit profiles are boosted with the following records:
- Utilities (phone and electric bills)
- Non-prime loans (payday, rent-to-own, online products)
- Consumer-permissioned data
These records expand the credit files for millions of thin-file/no-file consumers, including underbanked applicants, young consumers and immigrants. Nontraditional credit data provides insight enabling consumer-friendly loan terms and gives opportunity for lenders who want to expand their consumer universe.
Alternative Credit Data Accesses the Story behind the Score
Maria has a FICO score of 580. She lost her job five years ago and remained out of work for two years. Her payment history went bad and her home was foreclosed on.
Robert has a FICO score of 662 and appears to be paying his bills. Based on that information alone, he seems like the preferable applicant.
Not so fast.
Maria paid off several payday loans in a row, secured a $3,000 installment loan and paid it off in 12 months. Additionally, Robert has defaulted seven times in a row on small-dollar loans and applied for additional small-dollar loans 15 times in the past seven days.
Alternative credit data uncovers the missing pages from both applicants’ financial histories.
Nontraditional data is changing the way a new generation of lenders view consumers and expanding opportinuties for customer acquisition.
Current lenders, who have provided borrowing opportunities for an underserved population throughout the years, have the same growth opportunity. Alternative credit data can be used by anyone looking to increase good-faith relationships with responsible non-prime consumers.
Download Clarity’s 2019 Alternative Financial Services Lending Trends report today.