Credit scoring challenges & solutions

November 29, 2018

VantageScore 4.0 Offers Solutions to 3 Common Consumer Credit Scoring Challenges
as published on TransUnion.com on November 8, 2018
by Gene Volchek

At
TransUnion, we believe that consumer access to multiple credit scores
is key to expanding economic inclusivity. Earlier this year, we looked
at how the use of additional credit scoring models in the mortgage
market could address unequal lending access among disparate economic and
ethnic groups. We also examined the explosion of consumer engagement
with a variety of credit scores via direct financial institution
relationships, freemium sites and the credit reporting agencies (CRAs),
ushering in a new era of consumer credit-savvy and empowerment.

These
developments are generating exciting innovations in credit scoring,
with the potential to help more individuals and families gain access to
capital and improve their standards of living. One of the more promising
movements is the incorporation of trended data into credit scores.
Trended data, also known as historical or time-series data, illustrates
more than a view of consumer debt at a single point in time. By using
trended credit data, lenders can incorporate up to 30 months of account
history on loans and credit accounts, exposing patterns that can help
them make better-informed decisions.

For example, the
VantageScore 4.0 credit score leverages historical credit data like
changes in balances and actual payment amounts. This information allows
lenders to see, for example, whether a consumer is paying off credit
cards each month or carrying a balance — and whether that monthly
balance is trending downward or upward. VantageScore 4.0 credit score
also offers solutions to three specific challenges that traditional
models present to lenders and consumers alike:

Challenge #1: Consumers
who are new to credit or have limited credit histories are often
outside the reach of conventional scoring models, resulting in lost
opportunity for businesses and individuals.

Solution:
Using trended data, VantageScore 4.0 enables lenders to uncover risk
value hidden in plain sight, providing the confidence necessary to offer
financial products and services to an expanded universe of
credit-worthy consumers. In turn, more than 30 million additional
consumers gain access to relevant financial products and services that
can help them improve their quality of life.

Challenge #2:
Traditional credit scoring models can be fairly inconsistent as they
are requested through one CRA versus another. This can be confusing for
consumers, and depending upon the chosen score, may exclude them from
certain credit opportunities.

Solution:
VantageScore 4.0 is the first and only credit scoring model with trended
data leveled across all three of the major CRAs, offering a consistency
that other scores lack. Better alignment in consumer credit scoring
allows for more confident lender and consumer decision making.

Challenge #3: Enhancing predictive scoring model performance without creating additional business and market risk.

Solution:
VantageScore 4.0 delivers solid predictive risk performance across
consumer credit products, including a respective 16.6% and 12.5%
performance lift* in bankcard and auto credit lines. The ability to
assess default potential more concretely, while opening doors of
opportunity to more consumers, is an economic win for all.

As
the fourth-generation credit scoring model from VantageScore Solutions,
VantageScore 4.0 offers innovation and benefits that serve 21st Century
lender and consumer needs. The model is another example of TransUnion’s
investment in, and commitment to, the use of Information for GoodSM to help consumers gain more access to credit, control their financial lives and improve their standard of living.

* As compared with VantageScore 3.0

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