Are consumers who cannot be assigned credit scores using traditional scoring methods an added cost for lenders, or an opportunity to grow their portfolios?
The answer is both, according to responses from lenders to a new study commissioned by VantageScore Solutions and conducted by SourceMedia Research.
Indeed, more than 60 percent of survey respondents, which included more than 200 senior executives with financial institutions whose roles include risk management responsibilities, said that the tens of millions of consumers without credit scores represent either “additional costs to our institution,” or an “opportunity to reach new market segments.”
With roughly one-third of survey respondents saying they receive loan applications from consumers without credit scores “sometimes” or “frequently,” the ability for a model to score more of these consumers can have a dramatic impact.
The VantageScore 3.0 model can accurately score approximately 30 to 35 million more consumers than traditional models. The model accomplishes this by using more advanced modeling techniques and a broader, deeper set of credit file data than previously available. This allows the VantageScore 3.0 model to capture unique consumer behaviors more accurately.
Unscoreable consumers typically include infrequent users of credit, new entrants into the credit market, consumers without recent credit activity and those without open credit accounts. Obviously not all of these consumers should be labeled subprime, and according to VantageScore Solutions, more than 10 million of these consumers have either prime or near-prime credit scores.
Because of challenges lenders previously had in underwriting consumers without credit scores, many lenders categorize them as representing a higher risk. More than 25 percent of survey respondents believed consumers without credit scores were “high risk.”
With the ability to provide a score for millions more consumers, the VantageScore 3.0 model enables lenders to score more consumers more effectively, and consumers in turn receive greater access to fair and equitable credit, especially among underserved populations.