The Credit Score Present and Future

Urjanet’s Erik Becker, VP Sales, and eCredable’s CEO, Steve Ely, joined

together in our panel discussion webinar to take a look at today’s credit

scoring models, their shortcomings and limitations, and how a new

proprietary models could be the answer to giving the millions of

underbanked and unbanked American consumers a more sufficient

method of credit scoring.

In this webinar recap, you’ll gain insight into the sentiments around this

new proprietary scoring models as the team reviews the results of a recent

survey conducted by Urjanet of nearly 900 American consumers. Read on

to learn more about these topics and more!

Currently, FICO remains one of the top bureaus that lenders use to determine

consumer credit risk. According to Steve Ely, CEO of eCredable, while the

models FICO uses are traditionally useful for assessing someone’s credit risk

more easily, it is less useful for the millions of Americans who are classified as

"unbanked" or "underbanked". These models take a variety of information,

including payment history, credit utilization, length of credit history, credit

mix, and new credit to assess someone's score.

This mixture of consumer information then is scaled on a ranking system of

scores that fall into "Poor", "Fair", "Good", and "Excellent" categories. And while

this scoring method can be incredibly helpful for those who already have a

thicker credit file, it does have its limitations.

The current roadmap to achieving optimal credit history is a bit

of a tightrope walk, according to Ely. He stated that the current

roadmap to good credit revolves around opening new

accounts, or tradelines as they are known to banks and credit

bureaus. He states that there are three ways to do this if you're

just starting to build credit:

Acquire a secure credit card from a bank

Apply for a starter loan from a credit bureau

Have a friend or family member add you as a verified

user on their credit cards

Once you have received a loan and begin to build your credit, you

can apply for other tradelines, and they are reported to the major

three bureaus to increase your score. But while this may seem

easy, building good credit from scratch can take time, and can be

damaged very quickly as a result of late payments, bankruptcy,

and more.

The current models lend themselves to a host of limitations,

especially for those with thin or no-hit files. But companies, like

eCredable, are providing a new proprietary models utilizing new

data to help millions of un- or underbanked consumers achieve a

healthy credit score.

According to Ely, there's a clear need for a new credit scoring models that positively

impacts both consumers and lenders. That's where proprietary models come in.

eCredable offers a unique approach, using a variety of the consumers' payment history

data to analyze their credit worthiness. The company takes payment history information

on utilities like rent, cable, telecom, water, gas, electricity, and insurance payments to

better understand how likely the consumer is to pay back a loan.

As these models are starting to gain traction with lenders, Urjanet wanted to understand

how the consumers felt. In a recent survey of nearly 900 American consumers, Urjanet

asked consumers how they felt about today's models and potential use of alternative

data for new credit scoring models.

of respondents felt that today’s credit

scoring methods are accurate when

determining an individual’s credit risk.

When it came to incorporating alternative data into

credit scoring models,

of respondents said they agree or somewhat

agree that utilizing this data would help paint

a more accurate picture of an individual’s

creditworthiness.

When it came to the type of alternative data respondents were

comfortable with, utility bill payment data ranked top of the list.

of respondents felt water,

electric, or gas bill payments

were good indicators of

creditworthiness of respondents

of respondents said

cable, mobile phone,

and internet payments

of respondents cited

rent payment

When it came to the type of alternative data respondents were

comfortable with, utility bill payment data ranked top of the list.

of respondents said they

would be very comfortable

with providing access to

water, electric, or gas

payments

of respondents felt the

felt this way about their

same about their

internet, mobile phone,

and cable payments

of respondents felt like

this about their rent

payments

According to Erik Becker, VP Sales , Urjanet, these types of proprietary models have

"been made possible by the advent of web services and web service technology

infrastructure. Allowing applications to communicate with one another to exchange

data and application access across the internet is the underlying technology that

enables much of the innovation in the financial technology space, and enables the

relationship between Urjanet and eCredable.

In the case of Urjanet, for example, we have built a platform that aggregates utility data

from a number of services. The data points are then normalized for companies, like

eCredable, who use that data to better understand their consumers payment history.

Companies can also receive this information on an ongoing basis to monitor payment

history of consumers.

The value for lenders in creating these proprietary models is vast. According to a recent

TrasnUnion survey, it was found that of 317 lenders, nearly 2/3 said they have seen

tangible benefits within the first year of using alternative data. Combine this with the

competitive market value these models offer and lenders are essentially able to tap into a

new market that has previously been untouchable.

The Value of Utility Data as a Point of Analysis

of lenders said they can

reach more credit

worthy customers in

their current markets

of lenders said they are

more competitive in the

marketplace

of lenders said they are

better pricing their credit

to match risk

But what about consumers? Can these proprietary models change the way younger

generations and immigrant populations achieve credit scores? Absolutely, says Becker. He

continues to say that "these some 50 million unscoreable Americans now have the chance

to achieve a credit score, build a credit score, and be more financially stable with the use of

utility bill payment history as a determining factor of their credit worthiness."

In the future, it is clear that there is major value in reassessing how lenders are currently

assessing credit worthiness, for both the lenders themselves and consumers as well. The

previously vast American population that is considered "unbanked" or "underbanked" will

have access to a viable credit score to build their credit file, and lenders now have the

opportunity to expand their market, creating a symbiotic relationship that was previously

hampered by traditional methods of scoring.

The Value of Utility Data as a Point of Analysis

Ready to learn more about how

Urjanet is helping companies

access hundreds of data points?

Learn more at urjanet.com.