New research from VantageScore Solutions underscores how even a limited sample of core credit behavior information can drive better decisioning for lenders and opportunities for consumers.
VantageScore Solutions, LLC, developer of the VantageScore credit score model, released a new white paper that substantiates the need for more modern credit score modeling techniques to score today’s consumer. “Improved Assessment of Credit Health Using Trended Credit Data” showcases, through empirical analysis, how leveraging trended data provides better risk separation and a more fair opportunity for consumers.
Traditionally, most credit scoring models use a “static” credit view (i.e., the most recent credit report) to analyze a consumer’s creditworthiness, which only offers a one-point-in-time snapshot of a consumer’s use of credit.
New research from VantageScore demonstrates that trended credit data provides a more complete risk assessment, enabling decisions to rely more on actual credit management behaviors of consumers and less on the length and depth of credit use history. These decisions ultimately result in lower default rates.
VantageScore data scientists found that 32% of consumers, roughly 1 in 3, see a credit tier change when trended credit data is factored into their credit score, with most of the shifts occurring in the Prime and Super-Prime tiers. Additionally, consumers who were “swapped up” into a higher credit tier exhibited 20-40% lower default rates compared to those consumers who were “swapped down” from that same credit tier into a lower level. These findings held across all loan types (e.g., auto, credit card, mortgage, installment) as well as for originations and account management functions.
Consumers who shifted downwards might have had longer tenures using credit and less delinquencies historically – both of which are static attributes weighted heavily by many conventional credit scoring models – but they also possessed significantly higher credit card balances and rising utilization rates over time. By contrast, those consumers whose scores increased demonstrated positive behaviors such as more aggressive payments on installment loans and lower and more stable utilization rates over the past 12 months.
VantageScore 4.0 is the only tri-bureau generic scoring model to use trended credit data by evaluating a consumer’s credit behavior over a longer period of time; ultimately, providing a more comprehensive look at a consumer’s overall credit health.
“What this study shows is that consumer behaviors are outpacing many of the models in use today,” said Barrett Burns, CEO and president, VantageScore Solutions. “Not only does trended credit data provide a great opportunity for lenders to better identify riskier consumers, but consumers benefit because they can recover from a missed payment or two and build credit more easily. Fundamentally, a consumer has no power over the age of her or his credit and we are now able to recognize that and provide a better approach.”
For more details and to access the white paper “Improved Assessment of Credit Health Using Trended Credit Data”, visit: www.VantageScore.com/TrendedDataWP.