Member-driven. Member-centric. Member-friendly. No matter what you call it, today's members, or consumers, are driving the way businesses interact with credit unions and other providers. It's not exclusive to the financial services industry – consumers are driving the way we do business across the board, demanding that businesses adapt to the way customers most want their needs to be met. But credit unions may be challenged when trying to tailor business to member-specific needs while simultaneously managing risk. The competing and conflicting interests can impact membership and growth in share of wallet.

But a goldmine of data, largely untapped by credit unions, could enhance loan portfolios in the anticipated surge in consumer borrowing. While alternative credit data exists for consumers with less than 700 credit scores – an estimated 113 million consumers – Big 3 bureaus never consider it.

This may be news to consumers. Out of 2,279 U.S. adults recently surveyed, 71% assume major credit bureaus are including all consumer credit history, including non-traditional payments like short-term loans, online, rent-to-own and more. The survey, conducted by Radius Global Market Research in June 2017 and commissioned by FactorTrust, showcases the disconnect between consumers and their own credit data, in relation to the actual data lenders use to determine lines of credit.

Little do these consumers know, the true nature of their payment habits is not being accurately reflected in their credit files. Since the alternative loans they are taking out and repaying on time are not included in their credit profiles, their credit histories are inaccurate and incomplete.

The omission of this type of alternative credit data – short-term loan and rent-to-own payments, for instance – means that consumers who successfully repay these non-traditional loans do not receive the credit they deserve. But, 72% of U.S. adults believe lenders would be more likely to consider a consumer for a loan with information about all of their loans, including alternative credit data. Another 68% said their credit history would improve if it incorporated all of their payments including non-traditional loans.

But that's not the only limitation of traditional bureau data. Today's news and media offers more questions than answers on the accuracy of data coming from the Big 3. Traditional data is leading to unsound loans, and regulators are taking note. Just this year alone, two of the traditional credit reporting agencies were hit with fines and refunds in the amount of $23 million for improper and inaccurate usage of data around consumer credit scores, according to the New York Times.

Still, even if the scores from the Big 3 credit bureaus were correct, they are not complete. They lack information. They don't include real-time data on behavioral metrics that indicate consumers' stability. Alternative credit data helps to pinpoint the number of times consumers move homes, the number of cell phone numbers they use and the distinct number of banking accounts with which they do business, to name a few. This is meaningful data that, when combined with public and private records, sanctions and identity-related information, provides a better snapshot of consumer performances, helping to reveal a person's ability to pay back a loan. This also increases a credit union's ability to better identify appropriate members and their needs, which lends its way to growth in members' share of wallet.

Stagnant and slow in today's fast-paced environment, the limited data used by Big 3 bureaus does not remotely keep up with the needs of consumers, nor credit unions with whom they do business.

As a result, credit unions are being kept in the dark about the full creditworthiness of consumers. Decisions should be made based on the complete picture of consumers' financial activities, not just a snippet of information. All payments consumers have made should be accounted for and factored into their scores. For a complete picture on the creditworthiness of loan candidates, alternative credit data should be paired with Big 3 bureau data.

Fortunately, alternative credit data is the next generation of data. It is available in real-time and its highly predictive performance allows credit unions to be more nimble and more responsive to its members.

Alternative credit data has been tested and used by a number of financing sources across many types of institutions in recent years. Alternative data first appeared on the scene with the use of public record information. Historically, short-term lenders were the early adopters, followed by online lenders and now by many non-prime consumer lending sources. More near-prime and prime credit unions, financing companies and banks are exploring the inclusion of alternative data into their scores and credit strategies as well. Some might make the case that alternative data is mainstream in many sectors already.

In fact, the results of a survey of non-prime auto financing sources, also commissioned by FactorTrust and performed by Connections Insights in April 2017, confirm the use of alternative data is common in the auto sector.

The study found that all participants either currently use alternative credit data or expect to in the near future. In fact, more than half of non-prime auto finance companies surveyed are already using alternative data.

Without this complete data, deserving consumers are shut off from too many credit unions and other financial providers because they are overlooked by the Big 3 bureaus, creating a blind spot in the decision-making process.

By opening the doors to a complete picture of underbanked consumers, alternative credit data can help credit unions expand service offerings, increasing share of wallet and bolstering membership bases.

Greg Rable is CEO for FactorTrust. He can be reached at 866-910-8497.

Instant Insights /

Grow Share of Wallet With Complete Credit Data

Related Stories

Recommended For You