Borrowing habits: Our parents versus us.
If we’ve learned anything over the last 10 years, we know there’s an app for almost anything. Weather, traffic, music, dinner reservations, transportation, maps, there’s little we can’t do with a tap of our fingers. The way we do things today differs greatly from how our parents did things when they were younger. This certainly includes how we borrow money.
Applications have become largely web-based.
Paper applications are not extinct, but they are on life support. You can certainly fill out a mortgage, credit card, auto, or personal loan application using pen and paper, just like our parents did when they were younger. But we also can fill out the same applications via web-based tools. This is meaningful because, unlike paper applications, the fields and the values in those fields that are included in such web-based applications are both fully legible and can be considered by credit scoring and other automated underwriting systems.
Almost all lending decisions include the consideration of one or more credit scores.
If you have applied for a credit card since the late 1980s or any type of loan since roughly 2000, then it’s almost a certainty that your lender pulled one or more of your various credit scores. Compare this to applications that had been submitted prior to the late 1980s, a time when few applications for credit were underwritten using a credit bureau risk score. Certainly, in today’s credit environment it’s almost unheard that a lender or service provider would fail to procure and rely on some form of credit score when evaluating a consumer’s application for almost any form of credit or services.
Lending criteria are more centrally established, controlled and deployed.
If you’ve ever heard the term “hub and spoke,” it was likely referring to how airlines operate their flights through the various cities that serve as hubs, like Dallas, Atlanta, Salt Lake City, and others. The same phrase can also be used to describe what’s commonly referred to as centralized lending in the consumer credit environment. The risk management groups within large financial services companies with hundreds or thousands of local branches will establish lending policies. These policies will then be deployed throughout the lender’s network of branches. This practice was much less common when our parents were seeking credit because lending decisions were likely to be made on a more local basis back then; perhaps even by someone who worked in a local bank or credit union branch and may even have known your parents.
Instant credit is, well, instant.
There was a time when a lender could take weeks or months to make a final decision about an application for credit. Credit reports were printed, and teams of underwriters would physically read and interpret them. For large lenders that would receive thousands of applications daily the process was extremely time-consuming. This all changed when credit scoring became a common component of credit application processing. Credit scoring has allowed lenders to build streamlined lending policies around a three-digit number rather than 20-page credit reports full of disparate data. As a result, if someone applies for credit today, the lender will pull a credit report and a credit score and will be able to make an instant decision, at least a preliminary one.