Top Alternative Credit Scoring Companies to Watch in 2019
2018 was a watershed year for alternative credit scoring. As industry experts converged at events like Money20/20 and FRB Fintech, lenders and federal institutions all agreed: financial inclusion is a social imperative, and to make that happen, credit scoring models need to expand and adapt. As we look ahead to 2019, we’ll be watching these key players as the top alternative credit scoring companies poised to change the game.
FICO has been the predominant credit scoring model for decades, but it doesn’t shy away from innovation in its models. FICO XD is just one example. Originally piloted in 2015, FICO XD has since been tested and gradually introduced to lenders as a way to qualify previously unscorable consumers. FICO XD layers in alternative data – including cable, cell phone, and utility payment history – accessed from NCTUE.
Tommy Lee, a principal scientist at FICO, said using alternative data sources can generate a score for 26.5 million consumers who wouldn’t have access to credit otherwise. Sounds positive, right? Not to everyone: using more data sources raises a red flag for those concerned about data privacy, especially in light of recent data breaches.
That is likely part of the reason that FICO has also introduced a newer model: UltraFICO. UltraFICO operates on a user-permissioned model, allowing consumers to opt-in to share their bank account data (checkings, savings, and money market transactions) in order to boost their scores. Among consumers who have kept a positive balance in their checking accounts and at least $400 in savings, 70 percent saw their scores improve.
While still on a pilot basis with a handful of lenders, FICO estimates that by the summer of 2019, UltraFICO will be more widely available to the general population. One thing’s for sure: FICO doesn’t intend to be left behind in the progress and momentum of alternative credit scoring companies.
A major competitor to FICO, VantageScore has been in the business for a while now, too. Founded in 2006 as a joint initiative between Experian, Equifax, and TransUnion, VantageScore runs on the same 300 to 850 scale as FICO.
VantageScore differs from FICO in a few key ways, but the most important is that it can be faster and easier to generate a VantageScore than a FICO score. The traditional FICO score requires six months of credit history, while VantageScore only needs one or two months. Meanwhile, some consumers who are unscorable by FICO because of thin credit files can get a VantageScore, through its consideration of rent, utility, and phone bill payments.
What’s next for VantageScore? The latest model is VantageScore 4.0, just released in the fall of 2018. The biggest advancement of 4.0 over previous models is that it incorporates up to two years of trended credit data. This means that rather than only looking at a consumer’s most recent utilization rate, VantageScore will look at patterns over time to paint a fuller picture of credit behavior. So far, VantageScore is one of the only major alternative credit scoring companies to use trended data.
Aside from their joint initiatives, the major three credit bureaus individually are taking on their own advancements, too. This December, Experian announced the launch of Experian Boost, a new tool that will allow consumers to add their utility and cell phone payments to their credit report.
Similar to UltraFICO, Experian Boost operates on a permission-based model. Consumers opt-in to link their bank accounts to their credit report through fintech platform Finicity. Experian then pulls utility and phone payments from the bank statements, and once the consumer confirms that they’re correct, a new credit score is instantly generated.
Experian predicts that two-thirds of consumers will see their credit scores improve from Boost. Out of those who tested the service, 10 percent of unscorable consumers were able to generate a score, and 14 percent of subprime consumers moved up into near-prime. According to credit expert John Ulzheimer:
“They won’t be approved for the best rate. But they are basically turning someone who is a denial into a marginal approval.”
Last but not least: TransUnion. In 2018, TransUnion launched the CreditVision Link Short-Term Risk Score. The new scoring model takes into account both trended bureau data and alternative credit data – the first in the market of alternative credit scoring companies to do so, according to TransUnion.
Specifically created for alternative lenders, CreditVision Link builds on risk scores from FactorTrust (an alternative credit bureau now owned by TransUnion). Combining traditional static and trended bureau data with performance data on alternative loans, the new model is ready-made to help alternative lenders reach their nearly $40 billion market.
“Alternative credit data alone does not provide a comprehensive view of subprime consumers or tell their whole story, but when combined with traditional, particularly trended data, it can yield powerful results,” said Liz Pagel, VP of consumer lending market strategy at TransUnion.
The Next Step for Alternative Credit Scoring Companies
Altogether, these alternative credit scoring companies are tapping into more diverse data sources: both static and trended, alternative and traditional. And if UltraFICO and Experian Boost are any indication, they’re also looking to make sure that consumers are in full control of the data that’s used.
In the search for new, user-permissioned alternative data sources, alternative credit scoring companies need to look no further than the Urjanet Utility Data Platform. Urjanet’s alternative data for credit scoring is:
- User-permissioned – applicants can opt-in to link their utility and telecom accounts to a lender or credit reporting agency through the Urjanet platform
- Up-to-date – through integrations with thousands of global utility providers, Urjanet retrieves the most recent payment data on demand
- Complete – direct access to utility and telecom payment data provides all relevant data points, including completed and missed payments, and whether bills were paid in full and on time
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About Amy Hou
Amy Hou is a Marketing Associate at Urjanet, writing about emerging topics in sustainability, energy management, and data innovation.