A bigger slice—and a bigger pie
I’m looking forward to Thanksgiving as much as anyone, but lately I’ve been thinking about pieces of pie that have nothing to do with Grandma’s flaky crust. No, the 2015-16 market-adoption figures we released a few weeks ago have me thinking about slices of the credit scoring market.
Indeed, the fact that more than 2,400 companies and financial institutions now use VantageScore indicates that we’re capturing a larger slice of the credit-scoring pie. We’ve made important inroads against our entrenched competitor, and we’re proud of that.
One of the important take-aways is that although some lenders are clearly voting with their feet by choosing VantageScore, some of our explosive growth in usage is tied to expansion in the marketplace for credit scores. The pie itself is getting bigger – much bigger.
Usage of credit scores in traditional loan-approval processes has grown, while innovative lenders and other companies continue to find additional uses for them, including:
Customer acquisition/marketing. Credit scores are used to segment consumers to identify prospects for specific loan offers and other financial-services products.
Tenant screening. According to the National Multifamily Housing Council, 35 percent of Americans rent their homes, and a growing number of landlords are using credit scores as part of their screening processes, including frequently relying on scores to determine the amount of security deposits they charge. (Determining whether or not to rent someone an apartment is a kind of credit decision, after all.)
As an input to a custom model. Many lenders use VantageScore scores as one of several “inputs” into custom-built scoring models they have developed to automate their lending processes.
Account management. Many lenders, particularly in the bankcard arena, regularly check customers’ credit scores. If lenders observe a severe drop in a consumer’s credit score, they may reduce spending limits or take other loss-prevention measures. Conversely, increases in consumers’ credit scores can lead to credit line increases as well.
Evaluating securitized loan portfolios. The increasing availability of loan-level data, including monitoring of credit scores of borrowers whose consumer loans make up portfolios of asset-backed securities, helps investors and securities issuers alike gauge changes in the risk profiles of such securities.
Loss reduction. Some lenders may use credit scores to prioritize strategies for preventing loss (for example, by issuing reminders when customers make late payments) and for recovering losses through the collections process.
Utilities. Utility companies will frequently use credit scores to determine if a deposit is required and, if so, how much.
In addition, we continue to see impressive growth in the number of websites that offer VantageScore credit scores as part of free memberships or subscriptions that also provide personal-finance tips and information for improving credit health. (Many of these sites advertise credit cards and other products tailored to users’ credit scores.) Many credit issuers are also providing customers with free credit scores.
A bigger pie and a larger slice of it are things we’re very thankful for this season. We’re grateful as well to all who support us and who read this newsletter. Have a great Thanksgiving.
All the best,