A New Year and a New Approach to Post-Pandemic Credit Data
Last year the pandemic took the world by storm, leading to record high unemployment, rent and utility moratoriums, and CARES Act payment deferrals. Faced with an uncertain economic outlook, banks tightened their lending standards, lowering credit limits and raising credit score requirements. Recent studies are predicting that consumer credit lending will return to pre-pandemic levels in Q2 of 2021.
With this glimmer of hope comes the need for additional insights beyond traditional data to support underwriting decisions. To accommodate changes to payment habits during the pandemic, banks and lenders need alternative data that better reflects borrowers’ ability to pay. Don’t let your New Year’s resolutions fall to the wayside – consider a new approach to credit data that can support economic growth, financial inclusion, and informed decision-making in 2021.
Overcome credit blindspots
The pandemic has had a widespread effect on the financial services industry, impacting lenders’ credit decisioning process. According to Mark Begor, CEO of Equifax, lenders have become less confident in their decisioning – resulting in a decline to just 38 percent of the population. With traditional credit data becoming less reliable, lenders are at risk of operating blindly due to limited visibility into a borrower’s credit profile.
Banks and creditors rely heavily on credit reports to make informed decisions. With the integrity of traditional data compromised, it’s become necessary for financial institutions to consider alternative data for credit risk decisioning. By turning to this additional data source, lenders can better understand borrowers’ ability to repay balances and their income stability.
Uncover more creditworthy borrowers
Alternative data has been around for years, acting as a supplemental source for unscorable, subprime, and credit invisible consumers. Now that its adoption is growing in popularity, more creditworthy borrowers can be uncovered. For the 91.5 million credit invisible consumers in the U.S., leveraging alternative credit data can take them from being overlooked and shut out and into the world of financial inclusion.
From immigrants to younger generations, sharing their account payment histories enables them to take advantage of credit and lending opportunities that were once hard to come by. Accessing data that goes beyond traditional credit scores allows lenders increased visibility into payment behavior and the confidence to extend credit and lending offers to consumers who really need it. Additionally, this move can open the door for more personalized credit offers and a larger pool of potential borrowers for banks.
Support economic growth
Creating more borrowing opportunities for unbanked consumers also expands the pool of potential customers for banks and lenders – creating a win-win for both sides. In 2020, credit card companies mailed out 57 million offers to consumers in June, compared to 272 million during that same time in 2019. As the financial services industry ramps back up and companies begin to loosen the reins, lenders’ offers can support this critical growth in credit access.
In June of 2020, credit card companies mailed out only 57 million offers to consumers, compared to 272 million in 2019.
Credit access is expected to be easier for consumers with higher credit scores this year as lenders remain cautious about lending to subprime borrowers. Alternative data can give scores a much-needed boost for subprime, prime, and even near-prime consumers – bringing more opportunities to the table for creditors to win back customers.
Access the right credit data tools in the new year
2021 isn’t just the year for banks and lenders to recover from the pandemic; it’s also an opportune time for them to combat the inherent bias of traditional credit data – opening new doors and opportunities for the unscorable and credit invisible. Rent and utility payment history can be the solution to the challenges that we faced last year and provide a better view into consumer profiles.
To take a new approach to credit and lending this year, contact us to learn more about how alternative credit data access can improve decisioning.
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About Ma-Keba Frye
Ma-Keba Frye is a Content Marketing Associate at Urjanet, assisting with content development and execution. When she's not writing, she enjoys reading, listening to music, and volunteering.