A pair of surveys commissioned by VantageScore Solutions, and a new infographic summarizing their findings, reveal that both lenders and consumers harbor misunderstandings about a population of consumers known as the “credit invisibles,” who cannot be scored when lenders use traditional credit scoring methodologies.
Among other findings, the survey found that half (51 percent) of consumers and 61 percent of lenders estimate the number of unscoreable consumers at less than 25 million – significantly below the actual figure of approximately 35 million. Lenders also said that they view these consumers as an opportunity for their institution, and not an additional risk or cost. Indeed, prudent credit offerings to the credit-invisible population can be an effective way to secure and build loyalty with new customers, ahead of competitors using conventional scoring models.
“Clearly a lack of a credit score can be an impediment to obtaining mainstream credit,” said Barrett Burns, president & CEO of VantageScore Solutions. “In the mortgage sector, applications lacking credit scores must be manually underwritten, a process many lenders are reluctant to pursue in the current environment.”
“The findings of this survey indicate that while lenders see the ‘credit invisibles’ as an opportunity, they underestimate the number of consumers that make up this population,” Burns added. “It is important for lenders to understand these consumers’ risk profiles so that they can effectively extend credit safely and soundly in accordance with their lending strategies.”
Lenders are obviously not the only ones affected by the credit invisibles. Consumers also are worried that they are, or may become, credit invisible themselves. In fact, the survey showed that 69 percent of consumers are concerned that they or someone they know will be unable to receive a credit score. This alarming statistic is depicted in an infographic available at VantageScore.com.
Previous research by VantageScore Solutions uncovered the risk profile and demographic makeup of the credit invisibles and found that among the 30-35 million consumers typically not scored by conventional models, 10 million of these consumers have scores of 600 and above.
The VantageScore research also found that the risk levels of the new scoring consumers are aligned with consumers exhibiting conventional credit management behaviors, and from a fair lending perspective, 9.5 million of the newly scored consumers are African-American or Hispanic-American, of whom 2.7 million have credit scores above 600.