As everyone in the industry knows, there are plenty of credit scoring models out there. But the FICO® Score is the one used by most lenders to assess consumer creditworthiness. However, the three primary credit bureaus in the U.S. have developed the VantageScore. This allows TransUnion, Experian and Equifax to use their own data to score consumers.
Recently, these agencies have made a bold claim. They've announced that, through the VantageScore, they now have the ability to rate consumers who are "unscorable." They say that they're able to do this by using alternative data.
Here, the term "alternative data" refers to any consumer data that is typically not used to gauge credit risk. Specifically, the creators of VantageScore are tapping into utility and cell phone payment activity that is reported to them, the credit bureaus.
On paper, this sounds like a good idea. It seems that this plan might give consumers with no experience with loans or credit cards a better chance at getting approved for these things. But there's a big problem here. Most of this info isn't reported to the credit bureaus.
Data that Reveals the Truth about VantageScore and Alternative Data
Again, the VantageScore creators can only make use of the data they have in order to score consumers. And these credit bureaus only have the data that is reported to them. When it comes to cell phone and utility bill activity, only a tiny fraction of the available data ever makes it over to the bureaus.
Here's how the numbers actually break down:
- 92% of adults in the U.S. have a cell phone.
- 2.5% of consumer credit files contain info about phone accounts.
- 60% of adults in the U.S. pay for household utilities.
- 2.4% of consumer credit files contain utility payment info.
Also, the use of this data in calculating credit scores isn't new. In fact, FICO has been taking this information into account since 1989. So, calling this data "alternative" is very misleading.
The only way credit scoring data could be called alternative is if it were based on info not found at the credit bureaus. Then, and only then, could consumers without solid credit histories be given a better chance to earn a credit score based on other types of payments.
How to Get Reliable Data to Support Your Business
It is the era of Big Data, and, these days, getting your hands on the right numbers can be the key to success. At Auto Credit Express, we offer up-to-the-minute data that can provide your store with valuable insights.
First, find out how you're really stacking up against your competitors. Then use your custom Subprime Market Analysis Report to help you improve your standing. Or, if you're already at the top of your game, our data can support your efforts to stay there.
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