Alternative Credit Scoring Models Matter

June 8, 2022

Competition ensures a healthy and productive market. Credit scores are no exception.

A new study commissioned by VantageScore Solutions, a consortium of the three credit bureaus (Equifax, Experian, and TransUnion), found that institutional investors with exposure to asset-backed securities (ABS) and residential mortgage-backed securities (RMBS) are supportive of competitive credit scoring methodologies and desire more transparency and inclusivity among credit scoring models used to underwrite the loans that collateralize the securities they purchase. 

Specifically, the survey which included qualitative and quantitative research representing the views of a sum aggregate of $47 trillion in assets under management (AUM), revealed that: 

Among high-level takeaways from the survey, which represent the views of an aggregate of $47 trillion in assets, found that: 

•  Investors Want Alternative Scoring Models – 93% of investors are open to considering alternatives to conventional scoring methodologies – with a similar level of support from those who focus on ABS and RMBS specifically (91%); 

•  Investors Demand Financially Inclusive Credit Scoring – 85% of investors noted the importance of the development of models that are more inclusive and incorporate methodologies that will enable the inclusion of the majority of the underserved communities across the United States; 

•   More Transparency is Key – 58% agree greater transparency around how credit scores are calculated would be helpful; 

•    ESG Is Critical – Investors believe Environmental Social Governance (ESG) already plays an important role in investor decisioning with 76% expecting this phenomenon to continue in the future. 

“This research shows that investors want credit scores to keep pace with demographic shifts and advances in technology and data innovation–without lowering risk standards,” said Silvio Tavares, President & CEO of VantageScore. “There is clearly demand to move away from the status quo with an emphasis on increased inclusivity and transparency, which are two areas where VantageScore is best in class.” 

Click here to view the study in its entirety.

This article was originally published on DS News on June 7, 2022.