Study: Thick-File Lending Criteria Exclude Eligible Borrowers, Not Risk

White paper explains how 60 million consumers are removed from consideration

STAMFORD, Conn.--()--Steps many lenders took to prevent additional losses after the 2008 recession reduced their pools of potential borrowers without reducing lending risk, according to a study, Maximizing the Credit Universe, from VantageScore Solutions, the company behind the VantageScore credit-scoring model.

In the wake of the Great Recession, many financial institutions supplemented score-based quantitative lending criteria with more restrictive qualitative requirements intended to lower risk. These include insisting that potential borrowers have “thick-file” credit reports – i.e., those with at least three accounts; considering only applicants with activity within the past six months; and in the mortgage sector, requiring that borrowers have credit files at all three national credit reporting companies (CRCs) – Equifax, Experian and TransUnion.

The VantageScore paper demonstrates how a thick file requirement can reduce a lenders' accessible universe by as much as 22 percent or 60 million consumers. These include two consumer population profiles:

Upsiders (34 million): often are consumers such as thin-file consumers, infrequent users of credit, and new credit users that have the potential to be highly credit worthy.

Minimalists (26 million): are those that use credit only rarely but could be good loan candidates or have only derogatory information in their credit files.

The paper and webinar also illustrate, through a case study, how to enhance strategies to expand universe by as many as 19 million consumers with scores at or above 620 without increasing default rates by eliminating the thick file requirement and replacing it with a strategy based on scores developed by VantageScore 3.0.

“Qualitative lending criteria are intended to reduce risk, but they do not always accomplish that goal,” said Sarah Davies, senior vice president of analytics, research and product management at VantageScore Solutions. “Qualitative criteria do reduce the potential pool of loan applicants, excluding many worthy consumers from consideration. This study provides a remedy, through less stringent qualitative requirements and advanced credit scoring technology.”

The whitepaper is available for download on the VantageScore Solutions website.

About VantageScore Solutions

VantageScore Solutions, LLC (www.vantagescore.com) is the independently managed company that owns the intellectual property rights to the VantageScore credit scoring models, including the VantageScore 3.0 model, which provides up to 25 percent predictive improvement over earlier models and has the ability to formulate a score for 30 – 35 million previously unscoreable consumers. Initially developed by America’s three national credit reporting companies (CRCs) — Equifax, Experian and TransUnion — VantageScore Solutions’ highly predictive models use an innovative, patented and patent-pending tri-bureau scoring methodology that provides lenders and consumers with more consistent credit scores across all three national credit reporting companies. Nearly one billion VantageScore credit scores were used in 2014, by over 2,000 lenders and other industry participants, including six of the 10 largest banks.

Contacts

VantageScore Solutions
Jeff Richardson, 203-363-2170
jeffrichardson@vantagescore.com

Contacts

VantageScore Solutions
Jeff Richardson, 203-363-2170
jeffrichardson@vantagescore.com