A More Inclusive Perspective That Benefits Borrowers (and Builds Business)

Brandi Hamilton

borrowers

Do Good and Do Well Through Third-Party Verifications

As a lender, you understand that consumers and borrowers seek loans for good reasons — like buying a car, financing a purchase, or getting a mortgage. You’re enabling people to get things they need. And that’s a good thing. So, seen from this perspective, lending is one way of helping people. 

  • A car loan helps someone get reliable transportation to work or school. 
  • A personal loan or credit card helps provide the means to make a much-needed (often substantial) purchase.
  • A mortgage helps someone go from “apartment to apartment” and into a home

What if you could help more people by lending to more people — those who need it most? Not only would it improve the service you offer, but it would also serve your business well. You can do both, but it starts with increasing financial inclusion.

Who Else is Out There?

Financial inclusion means looking beyond your current customer base to find potential customers you traditionally haven’t considered as such. We’re talking about those underbanked or credit-invisible consumers.  

This diverse group — an estimated 26 million strong* — includes several distinct generational populations:

  • Just starting out, students are eager to participate in the credit economy.
  • Many among Generation Z want to secure their first mortgages, auto loans, personal loans, and credit cards.
  • Both Millennials and Generation Xers alike seek to mitigate the impact of past (poor) decisions and aim to rebuild or protect their existing credit.

Spanning these generations, one in ten U.S. adults is credit invisible, while one in five adults are considered unscorable.**

First Recognize New Customers with Third-Party Verifications, Then Reach Them 

You can’t always see them by using traditional credit data alone. For this underserved group, payment histories and financial responsibilities aren’t always captured in a credit score. 

Broadening your view of potential borrowers by using third-party verification data, like employment and income information from The Work Number® from Equifax®, helps complete the picture. Thanks to having access to non-traditional data, lenders have an expanded perspective. This puts them in a great position to not only see underserved customers but seek them out. 

Simply put, financial inclusivity — ensuring everyone has access to financial resources and credit — is a proactive commitment.

Risk-Averse, Meet Score-Averse

A reactive response to serving these customers might put some lenders on edge because of the perceived risk and uncertainty involved. That’s true even though seeing a bigger picture can lead to bigger returns. While being risk-averse is part of your job description, so is increasing your portfolio. Third-party verifications reduce the risk, so that you increase your returns (without increasing your blood pressure).

Subprime Consumers — or Superprimed Consumers?

For subprime consumers, trying to access capital for a car, card, or home can be daunting, particularly when the terms offered are more expensive — if they’re offered at all. Despite this challenging reality, their needs remain all the same. And that motivates them to look elsewhere.

A majority of Americans — seven in ten adults***, in fact — are eager to prove themselves to credit lenders outside of the standard credit score. This large, untapped demographic of consumers may prefer alternative verification methods, knowing that a hard inquiry might negatively impact their credit score.

The message for lenders is clear: Categorically dismissing subprime consumers means missing out on significant potential gains. 

To not miss out, it’s imperative that lenders consider recategorizing this group of potential customers. One way to do so is by including third-party data in your assessment and verification of potential consumers. 

With this expanded perspective, lenders can reduce their risk and consumers are 34% more likely to get the loans they need****  — and right-sized terms that fit their unique circumstances:

  • Access to previously unattainable offers
  • Extensions of credit and expanded repayment agreements
  • Lower deposits and down payments
  • A more customer-centric lending experience overall

Adding data from The Work Number® into your decisioning process helps you see the bigger picture. It’s a concrete action that lenders can take toward financial inclusivity — while aligning with what consumers are looking for. 

Freedom From Fiscal Friction 

Loan applications are often rife with incorrect info. That includes income overstatements (and even understatements), inaccuracies that can impede processes and jeopardize approvals.

For traditional credit score-based decisions, borrowers are often tasked with providing additional documentation, including W-2s, paystubs, or proof of residency. Having applicants provide this — let alone tracking it down yourself — increases “consumer friction.” It’s cumbersome, time-consuming, and leads to lost opportunities. 

The more you rely on applicant-provided documentation, the more you open yourself up to uncertainty. While that’s sometimes necessary, relying solely on this kind of documentation is dated in our digital age. 

The exponentially more accurate and quicker way to authenticate income, identity, and employment is with third-party verifications, using permissible purpose data provided directly from employers. Used supplementally with credit-based decision-making or on its own, The Work Number® helps take the friction out of lending.

Certainty in Lending No Matter the Circumstances

The Work Number® is particularly helpful during ebbs and flows in the economy, when otherwise bankable borrowers may fall short of traditional standards. In uncertain times, uncertainty has no place in your lending-decision process.

Third-party verifications present lenders with a broader perspective that’s reliable, speeds decision-making, and mitigates risk, regardless of the times. Adding this lens to your lending increases your opportunities — and heightens your fiscal focus. 

Above all, it helps people.

Seeing borrowers’ circumstances for what they are — unique and credible in their own way — calls for an expanded field of vision. The Work Number® helps you see consumers who, until now, remained in the periphery of traditional lending. 

Increasing financial inclusivity by encompassing these potential customers provides opportunities to those who need it most and otherwise wouldn’t get it — all while growing portfolios. 

Learn more about The Work Number® and how this leading third-party verification solution can increase your financial inclusivity — and your earnings.

[sources]
* https://www.consumerfinance.gov/about-us/blog/who-are-credit-invisible/
** https://vantagescore.com/education/blog/approximately-1-in-5-adults-are-considered-unscorable.
***(https://www.prnewswire.com/news-releases/study-finds-70-of-americans-would-share-more-personal-data-for-fairer-credit-decisions-300814411.html)
**** Equifax Internal Study of The Work Number Inquiry Data, December 2018 – December 2019 United States consumer finance loans. Individual results may vary.

The post A More Inclusive Perspective That Benefits Borrowers (and Builds Business) appeared first on Equifax Insights Blog.

Read more...

Previous Article
Storytelling Through Data
Storytelling Through Data

Does Your Data Tell the Whole Story? As a marketer, you’ve heard the mantra: let the data tell the story. [...

Next Article
Podcast: Growing Optimism and a Rising GDP
Podcast: Growing Optimism and a Rising GDP

Light at the End of the Tunnel The U.S. economic forecast is strong. In fact, Moody’s Analytics’ outlook fo...