It is widely understood that subprime consumers have fewer opportunities to access credit because the underwriting process is more challenging for lenders. Whether because of low credit scores, or due to a lack of credit history (known as thin-file), these consumers are often forced to use alternative financial services to secure necessary funds.
Here’s the thing you need to know about alternative financial service providers: a large portion of them don’t report to the big three credit bureaus. Subprime credit transactions will not appear on a big three credit report.
Too many lenders settle for the information in a traditional credit report without considering how many credit transactions can occur outside of their realm. Quite simply, this means that lenders will not see short-term small-dollar loans (payday loans), auto loans through buy here/pay here dealers, even transactions by other installment lenders.
TransUnion recently released the Fraud Prevention Exchange to help combat loan stacking. While this is a step in the right direction, it fails to capture all relevant alternative financial transactions.
In order to see a consumer’s financial picture in its entirety, it’s essential for lenders to review alternative credit data in addition to a traditional credit report.
Seeing the Present AND the Future
Lenders understand how important it is to see a consumer’s current obligations and payment history when underwriting a loan, but what about the possibility of pending transactions?
Until now, that has been a blind spot in the underwriting process; a question that remained unanswered.
That is no longer acceptable with the proposed CFPB regulations around the corner. If a consumer begins stacking loans, lenders could find themselves unwittingly violating rules governing loan limits or ability to repay stipulations.
Revolutionizing the Underwriting Process
Clarity’s Clear Recent History™ provides everything you need in one smart package. First, you will see all subprime tradeline activity for the past 90 days, giving insight into the consumer’s current obligations. Second, and most importantly, you will receive Temporary Account Record, a Clarity-created reporting process that reveals pending loan transactions so you won’t approve a loan that could violate proposed regulations.
Temporary Account Record is the first solution of its kind, delivering nearly instantaneous results. In short, it eliminates the reporting lag time that leaves lenders vulnerable. Once a customer is approved for a loan and signs the papers, that loan will appear on their credit report as a Temporary Account Record. The immediacy of this data allows lenders to identify consumers who are attempting to stack loans, thereby minimizing potential losses.
Temporary Account Record contains crucial information for both underwriting and regulatory compliance. To learn more about this exclusive solution, contact us today.