How Intelligent Loan Applications Enable Lenders to Reach Credit Invisibles

Many of us have been warned about things going on our "permanent record" when we were kids, but when we became adults, we realized that some of those fears were greatly exaggerated. There's no permanent record that follows us around our entire lives, detailing that time we got detention in high school or our freshman English grade. Except for our credit score. Our credit score is one key indicator that follows us around, keeping track of our borrowing and spending habits, as monitored by the three-major nationwide credit reporting agencies (NCRAs) – Experian, Equifax, and TransUnion. According to the Consumer Financial Protection Bureau (CFPB) Office of Research, there are 26 million consumers in the United States who don't have that permanent record. They're called credit invisibles. These are the people who have limited credit histories and don't have credit scores from the NCRAs. In addition to “credit invisibles,” there are another 19 million people who are considered "unscoreable," which means they have an insufficient credit history to generate a credit score. However, research shows that many consumers and small business owners without credit scores actually have the cash and earnings needed to repay loans. That means many of these credit invisible and unscored applicants are being left out of opportunities to secure loans. Lenders that utilize the power of alternative financial data to look beyond an individual’s credit score that will expand their applicant pool, improve risk assessment models, and earn loyalty from qualified customers for many years to come.

How Can Lenders Use Intelligent Applications to Reach Credit Invisibles?

The biggest issue is that traditional credit reports only look at a certain portion of a consumer's financial life. Just because someone is unscoreable or credit invisible doesn't mean they are not credit worthy or already making payments on life's necessities. They may be paying rent, making utility payments, or have other non-traditional sources of payment history. An intelligent loan application combines traditional credit reports with alternative financial data to determine a consumer’s creditworthiness, and paint a more complete financial picture. It will provide access – with the consumers' permission – to their transactional data, their assets and liabilities, and separate non-income and deposits information. For example, alternative financial data from Envestnet® | Yodlee® Risk Insight Solutions provide access to data directly from banks, credit cards, investment accounts, and loans to create reports that will give lenders real-time and comprehensive visibility into a potential borrower's financial health and history. By considering alternative financial data beyond the traditional data sources, tax returns and pay stubs, banks, lenders, and credit card providers can potentially reach millions of new customers who have been otherwise invisible to financial institutions. To learn how to leverage consumer-permissioned financial data specifically for credit and lending use cases within an FCRA compliance framework, download this free eBook: Optimizing Lending Decisions with Critical Insight. For mortgage lenders aiming to digitize their process and improve their customer experience, join us at Digital Mortgage Summit on September 28-29 in San Francisco. The agenda includes educational sessions from the industry’s top leaders and live demos. Use code YODLEE at checkout to receive $200 off of the standard registration price. We hope to see you there!