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A Very Noteworthy November

The holidays are quickly creeping up on us, and somehow we already are headed toward the end of 2019. Many take this time of year to slow down, but we at VantageScore, are moving ahead!

In fact, as some of you may know, a recent market adoption study conducted by global management consulting firm Oliver Wyman found that usage of VantageScore credit scores has increased to more than 12.3 billion, a 20% increase from the previous 12-month time period between 2018-19. And also a consecutive 20% increase each year since 2015. That’s some serious growth!

I also want to share a story from a National Mortgage News article stating that “alternative credit scores are gaining on FICO.” The article gives us our first glimpse of how FICO score usage fares. According to commentary during FICO’s July 2019 earnings call, 14.5 billion FICO scores were used in the year, compared with their previous peak usage of 13.5 billion in 2007, which provides some context to our adoption gains.

Check out the full market adoption report in this month’s issue or download it here.

I also want to mention that last month we had our most productive MBA Annual Conference yet. On the heels of the big FHFA ruling that shepherded the opportunity for credit score competition into the mortgage market, we booked back-to-back meetings with many of the industry’s biggest players. Suffice it to say, there was great interest in VantageScore, and I have the parched mouth to prove it.

Also at the conference, I was able to meet and introduce the headlining general session called “Politics Today” with ex-Governors Chris Christie (R-NJ), Terry McAuliffe (D-VA) and Margaret Brennan (CBS News’ Face the Nation’s senior foreign affairs correspondent) moderated the session. They engaged in a spirited debate and even predicted the outcome of the presidential election.

Speaking of which, we also added more guests to our podcasts that we hope you take a few minutes to listen to. I had the privilege of interviewing celebrated economist Dr. Mark Zandi for our “Consumer Credit Podcast” series where he shared his insights on the looming Recession and his prediction of the next U.S. President. Tease: He described a scenario where the election could be decided in a single congressional district! We also interviewed credit expert Gerri Detweiler for the VantageScore Podcast Series.

Lastly, the VantageScore webinar - “Trended Credit Data: Consumer behavioral credit trends and tools” – presented by our very own Dr. Emre Sahingur is now available to watch on the Consumer Bankers Association website. Register here, and you can still use our FREE promo code: VS1120.

Since it is the month of Thanksgiving, I’d like to extend a hearty thank-you to all those who have helped us along the way and made this busy year, well, busy. With so much going on, we are proud of the progress we’ve made and will continue to pursue in the months to come. And we are most grateful for your unwavering support throughout it all.

Best, Barrett Burns

Webinar:
Trended Credit Data – Consumer Behavioral Trends and Tools

With talks of a recession on the rise, it’s important now more than ever to arm yourself with the right tools and insights to navigate the volatility ahead. That is why VantageScore is proud to host the webinar “Trended Credit Data: Consumer behavioral credit trends and tools” through the Consumer Bankers Association. Although the live webinar has passed, you can still watch it on CBA’s website and use our free promo code (below).

Presented by our colleague Dr. Emre Sahingur, senior vice president, predictive analytics, research and product management, the webinar will shine a light on the latest consumer credit research and how this has led to more advanced credit score model developmentusing trended credit datathat delivers more predictiveness and accuracy in lender portfolio management and, ultimately, impacts lenders’ bottom lines.

We invite you to participate in the webinar with our free promotional code: VS1120.

Register now and learn more about it here: https://cba.elevate.commpartners.com/p/191120#

Market Adoption: 12.3 Billion & Counting

VantageScore Solutions Announces Score Use Grows to More than 12 Billion

New research from global management consulting firm Oliver Wyman finds a total of 12.3 billion scores were used across consumer credit loan categories, an increase of 20 percent over usage in the prior year.

VantageScore Solutions, LLC, developer of the VantageScore credit score model, announced the results of a study conducted by global management consulting firm Oliver Wyman that examined how many VantageScore credit scores were used in a 12-month period between 2018 and 2019, as well as by which types of consumer lenders.

Overall, the study found that 12.3 billion VantageScore credit scores were used, a 20 percent increase in usage over the prior year. Since June 2015, VantageScore usage has grown approximately 20% per year.

The Oliver Wyman analysts found that usage was widespread across credit loan categories, including credit card, auto finance, and personal loans as well as in functions where credit scores are often used, including pre-screen, marketing, origination, and underwriting and portfolio management.

Usage of VantageScore credit scores is widespread across all major consumer lending categories with the notable exception of the mortgage market, where FICO scores are currently required by both Fannie Mae and Freddie Mac during the initial screening of mortgage applicants when using their automated underwriting processes.

The Federal Home Finance Agency (FHFA), which regulates Fannie Mae and Freddie Mac, has issued a new rule that might open the mortgage market and would facilitate competition among credit score model developers in that arena.

“The continued surge in usage of VantageScore credit scores is a testament to an increasingly competitive marketplace for credit scores as well as the VantageScore model’s accuracy and inclusivity,” said Barrett Burns, President and CEO of VantageScore Solutions. “Consumer lenders are hungry for new and innovative approaches to consumer credit underwriting and clearly favor a competitive market that casts a wide net for scoring potential applicants in a safe and sound manner.”

Among Oliver Wyman’s other findings:

• Credit card issuers and banks and thrifts accounted for over half of all usage of VantageScore credit scores.

• Over 3 billion VantageScore credit scores have been provided to consumers to empower them to practice good credit health habits, and nationwide most consumers use VantageScore credit scores as a proxy for how a lender might interpret their creditworthiness.

• Nine of the 10 largest banks and 29 of the 100 largest credit unions used VantageScore credit scores in one or more lines of business.

“Having compiled this report for the third year in a row, we see impressive gains in market usage of VantageScore credit scores,” said Peter Carroll, partner at Oliver Wyman. “Notably, we observed growth in particular amongst lenders using VantageScore for origination and other credit decisions, which demonstrates that lenders don’t appear to be as tethered to legacy processes as they once were.”

To download the full market adoption report, visit www.vantagescore.com/adoption.

Podcasts:
Expert POVs on What 2020 Will Bring

For your listening pleasure, we’re excited to share new guests on our two podcast series.

In partnership with American Banker, we host the “Consumer Credit Podcast Series”. In this third installment, Barrett Burns, CEO and President of VantageScore Solutions, interviewed Mark Zandi, chief economist at Moody’s Analytics. Some may call him an “omniscient,” others call him a “guru,” but one thing is for sure about Dr. Zandi: His personal stories and insights are worth a listen! With so much talk of a recession in 2020, Zandi’s overview of past economic mistakes and the future of the global and U.S. economy can help prepare you for what’s to come.

Also, be sure to listen to his analyst team’s prediction on the next U.S. president and this election’s swing state.

Our very own “VantageScore Podcast” series was updated to include Gerri Detweiler, an author, blogger, radio host, director for Nav and overall consummate credit expert. With her vast knowledge on financial education, it would be a disservice to not listen to her tips on everything from building business credit to getting out of various types of debt and improving your financial health.

You can listen to this podcast series on:

iTunes

GooglePlay

Spotify

Next up in this series: Jim Deitch, co-founder and CEO of Teraverde Management.



Did You Know:
Credit Score Models Today

Credit score models today: What you need to know

(This article originally appeared in American Banker)

Look up “credit scoring model” and you’ll likely come across a definition that’s along the lines of “a statistically derived algorithm that provides an estimate of the likelihood that a borrower will default on a loan.” That is true, but is that the whole story? Today, credit scores are ubiquitous and impact millions of consumers in getting approved for a loan, the interest rate on that loan and getting a cell phone, among other things.

And thanks to the use of better data and predictive analytics, today’s credit scoring models are changing the game and enabling lenders to fine-tune credit decisions, better target the best borrowers, and bring into the fold millions of “credit invisibles” (i.e., consumers who are creditworthy but cannot be scored using conventional credit score models). In fact, credit scoring models today, and consumers’ access to and awareness of them, are a far cry from when the general-purpose FICO score debuted three decades ago.

Unbeknownst to many of today’s 250 million-plus credit-eligible consumers, people have more than one credit score. Dozens more actually. There are new credit scoring companies and differing methods of calculating credit scores. And lenders will often use more, than one type of credit scoring model in their decision making. Furthermore, lenders also continually test and update their own credit scoring models customized specifically for their own portfolios. All of these factors feed into the complexity of the credit score universe.

In general, credit score models typically fall into one of three buckets — third-party/generic models, industry-specific models and custom models.

Third-party/generic models. A third-party or generic model, which is based primarily on the information in credit reports from the three major consumer credit bureaus (Equifax, Experian, TransUnion), is designed to assess credit risk on a wide range of products. More specifically, it predicts the likelihood that a consumer will default, or go at least 90 days past due, on a credit obligation during the subsequent 24 months.

Industry-specific models. When a credit score model is designed to predict performance on a specific type of credit obligation, such as an automobile loan, they are often known as “industry” models.

Internal/custom models. Some lenders obtain credit reports from consumer reporting agencies and then develop scoring models in-house specifically for their portfolios to better understand the opportunities and risks associated with their customer base. These are commonly known as “custom” models.

LENDING SRATEGIES

To add to the complexity, as noted earlier, some lenders will use more than one type of model. More sophisticated lenders, like large banks, may use a combination of third-party and custom-built models, or perhaps more than one third-party model, in their decision-making.

“There are different ways lenders are leveraging scores generated by generic credit models, even using more than one generic score as ‘overlays’ or as ‘waterfalls.’ And they also are leveraging generic scores as part of the broader custom decision-making engine,” said Dr. Emre Sahingur, senior vice president, predictive analytics, research and product management for VantageScore Solutions.

For example, some lenders incorporate third-party models as an input into their own custom models in addition to many other variables, or as an “overlay” where multiple scores are used together to provide the best prediction. Others may opt for a “waterfall” strategy where a primary and a secondary model are available and the secondary model is used only in the event the borrower does not have a primary score.

On the other hand, a smaller lender may rely almost entirely on third-party scores for their decision making.

And today, lenders have a choice of generic credit score model providers, not just FICO. VantageScore, for instance, came on the scene in 2006, shaking up the industry by introducing competition and innovation. This spurring of innovation has proven beneficial to both the industry and to consumers, driving more predictive, inclusive credit scoring models with the ability to score more than 40 million consumers who are currently overlooked by conventional models without having to engage a supplementary add-on model.

OTHER CREDIT SCORE USES

While the primary function of credit scores is to help assess credit risk in a lending decision, the uses of scores are actually quite varied. Consider the following:

Marketing: Lenders use credit scores as part of their pre-screening process to determine which consumers to target and what products to offer. Consumer communication and the products offered can even be tailored to how a specific group of consumers use credit.

Pricing: A higher credit score may help a consumer qualify for a better interest rate, and vice versa.

Account maintenance: Lenders may use scores in their credit management processes, or to evaluate whether to cross-sell new products to existing customers. Furthermore, lenders may periodically review existing customers’ credit scores and reports to monitor for changes in risk profiles and determine whether any proactive actions may be necessary.

Secondary markets: Lenders disclose the credit scores for the pools of loans they sell to investors to supplement the underlying risk characteristics for secondary market pricing and/or investment purposes.

Credit scoring models have a proven track record of supporting these activities, ultimately helping lenders, investors and consumers alike. But they are not perfect.

“Models are based on the premise that the past will be predictive of the future. As the environment changes, credit scoring models built on historical data may become less reliable. It might be that you’re in a different economic environment. It might be that consumer attitudes toward credit and their usage patterns may have shifted, there may be new types of products [on the market], there may be new rules and regulations,” said Dr. Sahingur. “A lot of things may drive changes in how consumers interact with credit and how they perform, which is why it is important for credit score models to continually be tested and improve with the times, as well as tap into more advanced technology and methodology to score more people, more accurately and predictively. ”

The financial services industry has no doubt seen significant advancements in credit score modeling over the years and the pace of change shows little signs of slowing.

THE LATEST CREDIT SCORE INNOVATIONS

With the availability of vast amounts of data and the emergence of advanced technologies, a new era of credit scoring has emerged and is further transforming the credit modeling landscape.

Among the game-changers is trended credit data. Trended credit data delivers a refined view of a consumer’s financial health over time and enables lenders to better manage risks. This data can be an early indicator should a consumer’s credit worthiness improve or deteriorate in reference to their historical performance versus just “point-in-time snapshot” data, which is what traditional credit score models employ.

Using a model that incorporates trended credit data also has been particularly helpful when trying to “tease out” riskier consumers in the prime and superprime categories.

Also gaining greater attention is alternative credit data, which relates to activity that may not be captured on a traditional credit report — like rent, phone bills, and other forms of debt such as payday loans — and can help lenders gain a more comprehensive view of a consumer’s creditworthiness.

VantageScore paved the way for many innovations to move from theoretical to mainstream, and as a result is enjoying increased adoption among both financial and non-financial institutions.

According to the 2019 Market Study Report, conducted by Oliver Wyman, a global management consultancy firm, 12.3 billion VantageScore credit scores were used from July 2018 – June 2019. Adoption among non-financial institutions (i.e., tenant screening, utilities companies, etc.) was also considerable, and several investment firms also used VantageScore credit scores as part of their investment decision-making process.

Meanwhile, many websites such as CreditKarma, CapitalOne CreditWise, LendingTree and others are partnering with VantageScore to offer consumers the ability to check their credit scores free of charge, as well as provide educational tools and advice. In fact, more than 3 billion VantageScore credit scores were directly provided to consumers. This means that today’s consumers are more equipped than ever before to make informed credit decisions.

In today’s ever-changing market, lenders cannot afford to rest on their laurels. Gaining an understanding of complex scoring models and keeping pace with solutions that set a new standard for predictive performance and modeling innovation is imperative for lenders looking to maintain a competitive edge.

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