LONDON--(BUSINESS WIRE)--DBRS Morningstar released a commentary titled, “Open Banking May Improve Credit Scoring, but Risks Treating Borrowers Unequally”.
This commentary focuses on the use of credit scoring to check the creditworthiness of applicants when applying for financial products and changes that DBRS Morningstar has noticed in the way that credit reference agencies report credit scores.
Historically, credit reference agencies provided a credit score based on data reported to them by various financial institutions. However, recently, a new product based on open banking has been added to help applicants who sign up improve their credit score.
The commentary explores how this new product works and whether lenders that use it to make lending decisions are still considered to be treating customers fairly.
Key highlights from the commentary include:
- An outline of how credit reference agencies are used by lenders;
- An applicant comparison; and
- An explanation of how this process risks treating applicants unequally.
DBRS Morningstar believes that in terms of securitisation the potentially enhanced credit scores should be a neutral issue. Performance of the asset, the loan, is more important than the individual credit scores of the borrowers. Open Banking offers a great deal of transparency to improve the quality of borrower information, and improve the accuracy of credit scores. However, this credit score boosting product could affect lenders. They need to be cautious when using credit scores via Open Banking to determine an applicant’s financial reliability and ensure that TCF standards are uniform for all borrowers.
To view the full report, click here: https://www.dbrsmorningstar.com/research/378491/open-banking-may-improve-credit-scoring-but-risks-treating-borrowers-unequally
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