We already know who the credit-visible consumers are because we can see them on paper, more specifically, by a credit score. These consumers are clearly defined and simply assessed by a number.
So, how can we get a better view credit-invisible consumers? According to the Bank Administration Institute (BAI), as of summer 2021, roughly 25% of applicants for credit products and services in the U.S. are credit-invisible! Furthermore, the article shares that when comparing June 2020 to June 2021, data illustrate that applications from credit-invisible applications rose an additional 30% over June 2020. What could this mean for your financial institution’s loan growth potential and interest income?
Traditionally speaking, credit scores are most heavily relied upon by banks and credit unions when making lending decisions. Ignoring the credit invisible means financial institutions are likely missing out on younger consumers who haven’t had the opportunity to build their credit, yet are still seeking personal, home improvement and auto loans. This would be an excellent opportunity to extend credit and bring the unbanked into the mainstream financial system, and specifically your institution.
Relying exclusively on a credit score is risky in terms of lost income opportunities. A credit score may not line up with a consumer’s true financial picture. As we have learned during the pandemic, it is quite possible your financial world can change in an instant.
Alternative data programs and scoring systems increase the accuracy of a consumer’s true risk profile, providing clarity of a consumer’s financial picture so your bank or credit union can make an informed decision when assessing the risk of lending to people with little to no credit history.
The Financial Brand recently wrote, “Research suggests that use of some of these kinds of alternative financial data can lead to markedly more inclusive lending, without compromising credit performance and even, in some cases, enhancing it, especially when traditional and nontraditional data are used together.”
Integrating multiple data points helps your financial institution expand its loan portfolio while mitigating risk. As more credit-invisible consumers seek loans, banks and credit unions can increase loan volume, as well as interest income, if your institution decides to take the leap.
Open Lending’s Lenders Protection provides automated lending services, proprietary alternative data and default insurance coverage for auto loans. Let us help your bank or credit union see the credit-invisible and say ‘yes’ to more auto loans and save the unbanked and underbanked from unscrupulous, predatory lenders.