Can alternative credit data help evaluate prime consumers?

by Rich Heath

Rich Heath

Our recent blogs demonstrate the benefits of leveraging alternative credit data to identify more creditworthy consumers who are considered credit invisible and provide greater insights to marginal consumers who may be seen as having similar risk by traditional scores. Lenders have been incorporating alternative data into their credit decisioning processes for years and consider it to be a valuable tool for evaluating thin-file and no-hit populations. While these are common use cases, what does alternative credit data tell us about prime consumers?

ID Analytics examined the prime applicant segment of a top-10 U.S. card issuer and discovered that when using our alternative credit score Credit Optics® Full Spectrum, in combination with a traditional credit score, 20% of the prime applicants saw a bad rate that was approximately 10 times lower than that of the riskiest applicant group, while the riskiest 10% of the applicant group was approximately 5 times riskier than the overall mean:

Alternative credit data for prime

We achieve this granular separation of risk by observing behaviors in markets not typically captured by traditional scores alone. Alternative data sources can provide insight into behaviors such as delinquent payments, utilization of subprime loans and higher balances on alternative accounts, which can be early indicators of financial distress and higher credit risk for prime consumers.

As shown in our example, alternative credit data brings value to lenders when evaluating prime consumer segments. Combining these insights with traditional credit assessments can uncover meaningful opportunities for strategy refinement which will help enterprises make more competitive offers to prime consumers showing the least risk and ensure that riskier prime consumers are priced accordingly. Today’s lending market provides a variety of options for consumers, from traditional providers to fintechs and alternative lenders. This means that your enterprise should present the most compelling and appropriate offers to be competitive.

For more information about how your enterprise can take advantage of the benefits of alternative credit data across the credit spectrum, please feel free to contact me or visit our website www.idanalytics.com.

 

Rich Heath is the Principal Analytical Consultant at ID Analytics