Many consumers have a few dings and dents on their credit score given the trials and tribulations endured within the last 18 months or so. When in the market for a new or used vehicle, it’s better that those blemishes are in the credit score and not in the car he or she is about to purchase. How can financial institutions set these consumers up for success when their credit score is less than ideal? 

Events such as delinquency, bankruptcy, collections or multiple inquiries can lower a credit score significantly. The pandemic may have left these types of blemishes on consumer credit scores, but that current credit score does not reflect the whole story. Alternative data can supplement credit data to ensure lenders’ decisions are based on the most accurate information of who your borrower really is. 

The FICO 8 credit score most often used by lenders is based on a fixed point in time rather than looking ahead. Alternative data can help provide a broader, more realistic picture of potential risk, so your bank or credit union leaves less money on the table and helps consumers rebuild their credit.

According to an article in Credit Union Times, TransUnion recently studied 40 large credit union auto lenders and found 9% of borrowers scored nonprime by traditional credit scores would be recategorized to prime or above based on trended data. Alternative data can ease a lender’s risk concerns and help your bank or credit union to say ‘yes’ to more auto loans.

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Most banks or credit unions have a regimented system in place with a definitive yes or no attached to a loan request. Are nonprime borrowers simply out of luck or can your financial institution help them with a more accurate predictive-decisioning process get a little creative? Complementing traditional credit scores, alternative data also can be a path forward for financial institutions interested in reaching and building loyalty among young consumers who haven’t yet established their credit history.

Some credit unions are using alternative credit data in designing and launching credit-builder programs for young people with low to moderate incomes who either have no credit history or a bad one. Such programs typically include bundling a checking account and an initial credit-builder loan to set consumers on a path to qualify for other loans. 

Not only would a similar program help your bottom line, but it could also build a better foundation and loyalty among younger consumers.

Additional benefits would include growing your loan portfolio, gaining new members that may need additional services, increasing your interest income, and most certainly working toward reducing the risk when lending to these members. Let us help your bank or credit union get to ‘yes’ on more car loans and mitigate your nonprime lending risk with default insurance.