When consumers spend on their credit cards or take out an auto loan, few appreciate the important role of the capital markets in making it happen. But for many lenders, especially those that don’t take deposits, being able to pass on your debt to investors via the capital markets is what keeps money flowing through the system. And just as a lender uses credit scores as part of their evaluation of an individual’s credit risk, Asset-Backed Securities (ABS) investors are looking for ways to evaluate the risk of the pools of loans they are buying from consumer lenders.

VantageScore is used by lenders across many industries and has seen significant growth in consumer lending and personal loans, which increased by 132% from 2021 to 2022. Credit Card issuers remain the largest user group, consuming more than 40% of VantageScore credit scores used by financial institutions.

VantageScore’s increasing usage in underwriting the individual is being reflected in an increasing use by lenders when they issue ABS notes to the markets.

In 2022, major auto lender Toyota Motor Credit Corporation (TMCC) issued notes worth $6 billion using VantageScore to demonstrate credit quality of their portfolio, and top-10 credit card and retail lender Synchrony issued $1.7 billion. In total, more than $11.5 billion of ABS notes were issued in 2022 using VantageScore to demonstrate credit quality.

This trend has continued into 2023, with more auto loan ABS from Toyota Motor Credit Corporation (TMCC) and Exeter accounting for over $4 billion of issuances and $350 million from retail-focused credit card and personal loan lender Bread Financial. New issuances are tracked on the dedicated VantageScore Capital Markets page.

FTI Consulting conducted research amongst institutional investors in late 2021 and found that 93% of investors interviewed were open to using scoring methods other than conventional credit scores to evaluate portfolio risk.

VantageScore is in a unique position when it comes to evaluating portfolio risk because it scores 33 million more U.S. consumers than other models. VantageScore usage reduces the grey area of a “no score” population in credit portfolios that results due to “credit invisibles” caused by conventional credit scores. These “credit invisibles” are most commonly consumers who have not used credit products in the last 6 months but have credit file data that could run back years. This newly scored population also contains high numbers of underserved consumers, helping lenders ensure they meet Fair Lending goals and investors their ESG goals.

Transparency is another winning strategy for VantageScore as we publish data on the loss rates demonstrated by historic score bands on a quarterly basis via the RiskRatio tool. This allows investors to easily match up portfolio score distributions and understand the expected losses, as well as benchmark the performance of the portfolios under review.

The last factor that guarantees that capital markets will see more of VantageScore is the FHFA’s 2022 announcement that VantageScore 4.0 will be required for mortgages backed by Freddie Mac and Fannie Mae. The Residential Mortgage-Backed Securities (RMBS) market will be increasingly familiar with VantageScore through that channel and this familiarity will inevitably bleed over into the ABS markets.

With growing usage of VantageScore for underwriting, numerous examples of ABS issuance by major lenders and the removal of historic barriers in the mortgage market, the expectation is that VantageScore will become a mainstay of the capital markets and continue to facilitate responsible consumer lending.