The Evolving Ecosphere of Consumer Data

Before technology transformed the financial services industry, traditional credit reporting agencies (CRAs) captured mainly traditional credit data on consumers for their databases and solutions. Lenders typically only reviewed this traditional or conventional credit data when evaluating a consumer for a loan. In addition to their mainstay header information (name, date of birth, address and social security number), consumers’ files consisted almost entirely of conventional credit activity, such as credit card, mortgage and auto loans, and subsequent credit amounts/payment history on these loans.

Traditional credit data provided by CRAs is governed by the Fair Credit Reporting Act (FCRA), which governs the collection of credit information and access to consumer credit reports. All users must have a permissible purpose under the FCRA to obtain a consumer report.

Traditional credit data has been used for FCRA permissible purposes such as credit decisioning, account management, collections, and prescreen marketing applications.

Yet this traditional data-only model excluded a large segment of consumers that did not use traditional credit loans and banks – “non-prime” consumers with little credit history or largely unestablished standard lines of credit. These consumers, while not prime, are still considered primarily mainstream and creditworthy, as 99 percent of non-prime loan applicants have a checking account, and more than 90 percent have a direct deposit.

As the credit market began to become flooded with more and more competitors vying for the same consumer segment, lenders and auto financing companies had to begin to dig deeper, considering more consumers and becoming savvier in how they considered the consumers to whom they extended credit. As such, lenders began to look at consumers’ files a bit differently. Traditional data alone was not telling the full story – or at least not nearly enough of the story.

Enter alternative data. More data on consumers began to emerge, shedding light on the consumer’s ability to pay, providing affirmation or contradiction related to the consumer’s willingness to pay and highlighting assets a consumer may have to leverage as collateral. Alternative data points include non-traditional lending channels outside of traditional credit bureau data, like pay day loans and club or magazine subscriptions. In addition, alternative data assets such as checking and debit information, property, tax and deed records can also help add depth to a consumer’s credit file and can have tremendous impact on business growth.

With some adoption of alternative data in the ecosphere of consumer data – it still did not convey enough of the picture of today’s consumer. Enter alternative credit data, which is helping to complete the picture and truly identify potential high-opportunity or high-risk performers. This next generation of data introduced tradeline data on predominantly non-prime consumers. This includes data heretofore excluded, including non-prime, short-term loan tradelines, ACH payments, employment attributes, income, payroll type and payroll frequency. Generally, alternative credit data, like traditional credit data, is used for FCRA permissible purposes, such as credit decisioning, account management, collections, and prescreen marketing applications.

Trended traditional credit data scores are newer models that provide deeper insight into an individual’s changes with credit usage and payment behaviors over time. Trended credit data can incorporate more than two years of account history.

The most successful lenders in today’s ever-changing landscape are the lenders that have embraced the use of all these segments of data – traditional, alternative, trended and alternative credit data. These lenders get a complete view of the credit and financial profile of individuals, allowing them to make the best decisions about their customers, ultimately enabling lenders to be more profitable and helping to enrich the financial profile for many consumers.

Randy Bobb is the vice president, Sales, Auto Finance with FactorTrust/TransUnion. Bobb has more than 20 years of experience with information services, software, analytics and consulting. He is responsible for leading the auto finance sales team at FactorTrust around risk management solutions for underwriting, account management, servicing, and marketing for large auto finance companies, captives, banks, credit unions and buy-here, pay-here companies. Connect with him at rbobb@factortrust.com.