New research outlines the challenges consumers face when trying to access credit, how the financial services industry can increase financial inclusion and score 96 percent of applicants
Nearly 106 million U.S. consumers are unable to secure credit at mainstream rates either because they are credit invisible, unscoreable by conventional credit scores, or have a subprime or below credit score according to new research released today by Experian® and Oliver Wyman. The research shows that by using expanded data sets such as rental payments, trended data, utility information and more, and advanced analytics in their decisioning, lenders can improve access to credit for nearly 50 million credit invisible and unscoreable consumers, as well as millions of consumers currently considered subprime.
“We are committed to providing lenders with the right tools and insights to drive financial inclusion and have seen significant progress in recent years with many leading lenders leveraging expanded Fair Credit Reporting Act regulated data and advanced analytics,” said Greg Wright, Chief Product Officer and Executive Vice President at Experian Consumer Information Services. “Yet, as an industry, we can and must do better to ensure more consumers can access financial services at affordable rates. While the findings show we are moving in the right direction, financial access depends on complete industry adoption of new data and insights as well as business practices that proactively address the historical gap that’s existed in serving more consumers.”
Access to fair and affordable credit can help consumers get a college degree, buy a car or home, start or expand a business and ultimately help establish careers, build wealth and achieve greater financial success. Yet, in Financial Inclusion and Access to Credit, Experian and Oliver Wyman find 42 percent of the adult population lacks a conventional credit score in the range that would typically enable access to credit at mainstream rates.
Additional key findings include:
- Nineteen percent of American adults do not have a conventional credit score. This includes 28 million adult Americans who are credit invisible and 21 million who are unscoreable. An additional 57 million have subprime or below credit scores
- Credit invisibility more frequently impacts underserved communities with 26% of Hispanic consumers and 28% of Black consumers unscoreable or invisible compared to 16% of White and Asian consumers
- Credit invisibility often impacts younger consumers, with 40% of credit invisibles in the United States under 25
- Immigrants and consumers from low-income neighborhoods are more likely to face barriers in accessing mainstream financial services
The report shows lenders can expand access to credit for currently underserved consumers by increasing the number of consumers they can assess and by improving their ability to identify the true credit quality of borrowers. Leveraging expanded data, or nontraditional credit data, and advanced analytics can help lenders achieve both.
According to Experian’s research, when advanced analytics and machine learning are combined with expanded data sets as they are with Experian’s Lift Premium™ score, 96 percent of applicants can be scored, including an estimated 65 percent of the credit invisible population and the entire conventionally unscoreable population. This is significantly greater than the 81 percent of consumers that can be scored by conventional scores. In addition, 6 million consumers whose conventional scores are subprime could be upgraded to near-prime or above based on the expanded data used in the score.
“Now is the time to begin leveraging sophisticated tools like Experian Lift Premium™ to ensure all consumers can get the credit they deserve,” added Wright.
The report also points to increased opportunities to further drive financial inclusion with expanded data sets, including utility payments, rental payments, consumer permissioned data and bank account data. One example noted is Experian Boost™. Since launching in 2019, nearly 9 million consumers have enrolled in Experian Boost to improve their credit scores by adding their on-time cell phone, utility and video streaming service payments directly to their Experian credit file.
Lenders increasingly can utilize not only their own relationship banking data, but consumer-permissioned data from other financial accounts to improve their credit decisions. The use of consumer-permissioned data in underwriting, once the exclusive province of fintech disruptors, is expanding among mainstream lenders.
“Responsibly expanding access to credit is both an untapped business opportunity, and a chance to have positive social impact in our communities and with historically disadvantaged groups,” said Mike Hepinstall, Partner at Oliver Wyman. “Better identifying and serving creditworthy customers is an opportunity to grow while doing good.”
Read More: NeoSystems Names Susan Mitchell as CFO and Brad Wolf as Senior Vice President of IT Operations