Auto Lenders, Have You Embraced the Power of Alternative Credit Data?

by Jason Heil

Jason Heil

In 2017 the auto industry experienced its first sales decline in seven years1 and auto experts forecast this trend will continue into 2018.2 There are several reasons sales have reached a plateau. People are holding on to their vehicles longer, buying used cars and choosing lease options while many millennials prefer ride-sharing services over car ownership.³ These factors are contributing to increased competition among auto lenders, making this a great time for lenders to embrace alternative credit data.

Alternative data is typically considered to be a tool for evaluating thin-file and no-hit consumers who can’t be scored by the national credit reporting agencies. However, the benefits of alternative data go beyond a thin-file and no-hit credit solution. Alternative credit data can help auto lenders drive sales in a leveling market by giving them the ability to present more competitive offers and make smarter lending decisions across the credit spectrum, even in prime score bands.⁴

Consider how consumers shop today. Whether it is for a new pair of shoes, a house or a car – educated consumers are online, comparing their options, searching for the best price, seeking the most advantageous loan terms. By the time they walk into a dealership they may already know what types of offers they qualify for and the terms they are willing to accept. This means dealers should be prepared to offer the best possible option, to keep the buyer from taking their business to the competitor down the street.

Alternative credit data can help identify low-risk consumers who may be underestimated by their traditional credit scores.  Additionally, combining traditional data sources with alternative data sources enables lenders to see a broader scope of consumer behavior, which helps them make more informed credit decisions and further separate risk. To illustrate how looking at both traditional and alternative data scores can reveal differences in risk within a bureau score band, ID Analytics analyzed a group of prime auto loan applicants within a traditional credit score range of 700-749.⁵ Scoring the applicants using a combination of traditional credit data and alternative credit data revealed a much different assessment of risk among members of this group.  These additional insights can help lenders provide more informed credit and pricing optimization decisions.⁶

Could alternative credit scoring provide impactful insight into credit risk for your organization? Could it help you make more informed decisions around pricing optimization? To see the results of our study, read our research brief, Fueling Auto Lending with Alternative Credit Data.

ID Analytics will be attending Auto Finance Performance & Compliance Summit May 9-10 in Dallas and AFSA Vehicle Finance Conference and Expo March 20-22 in Las Vegas. We welcome the opportunity to connect with you at both shows to discuss your credit decisioning needs.

Jason Heil is the Principal Product Manager, Credit Risk Solutions at ID Analytics

 

1.ABC News, http://abcnews.go.com/Business/auto-trends-watch-2018/story?id=51987894 (accessed February 15, 2018).

2. NADA, https://www.nada.org/2018-US-sales-forecast/ (accessed February 15, 2018).

3. ABC News, http://abcnews.go.com/Business/auto-trends-watch-2018/story?id=51987894 (accessed February 15, 2018).

4. ID Analytics Auto Case Study, Separation of Risk Across the Credit Spectrum, 2017.

5. Ibid.

6. Ibid.