In the asset-backed securitization (ABS) marketplace, uncertainty can spell increased risk. In turn, that can impact valuations and performance.

But what does a credit score have to do with that?

Each loan in an ABS pool is associated with a credit score. But, as we know, not all credit scoring models are alike, or equally able to score the entire consumer population. The greater the number of unscoreable loans in an ABS pool, the greater the uncertainty of how the loans will perform – and the risk associated with the pool. Each unscoreable loan represents a blind spot for investors. For this reason, the rate of unscoreable loans speaks to the level of risk that may be associated with an ABS pool, and keeping unscoreables to an absolute minimum reduces uncertainty.

Examining the “Unscoreable” Rate in ABS Pools
A recent study conducted by VantageScore sheds light on the significant impact of the choice of credit scoring models that underpins loans in ABS pools. By comparing pools featuring loans scored by VantageScore only, competitor models only, or a blend of both, the study aimed to uncover disparities in the proportion of loans deemed “unscoreable.”

The findings undeniably conclude that pools that are solely based on competitors’ scores have larger volumes of unscoreable loans.

A representative sample of ABS issuances from major lenders shows pools utilizing VantageScore exhibited a remarkably low number of unscoreable loans, virtually negligible in comparison to pools reliant solely on competitors’ scores. Specifically, there were on average 1.65% of loans deemed unscoreable in pools based on competitors’ scores, whereas the usage of VantageScore resulted in an almost non-existent occurrence of unscoreable loans. The difference was striking, amounting to a threefold contrast.

Download the study to read more about how leveraging VantageScore provides a more complete understanding of ABS portfolio risk.