Perhaps here’s something that both consumers and finance companies can take as a positive from COVID-19.
Despite financial challenges brought forth by the pandemic, a new study from TransUnion indicated that 18.7 million U.S. consumers that entered a financial hardship program experienced an increase to their VantageScore 4.0 credit risk scores in 2020.
TransUnion sees consumers who rent where they live as constituting as much as half of the individuals who possess non-prime or lower credit profiles; if they even have a credit score at all.
Credit bureau analysts see that if rent payments were included in these consumer reports, the number of individuals who fall into lower credit tiers could change significantly — perhaps altering how providers such as auto finance companies complete their underwriting.
As consumers continue to navigate the COVID-19 pandemic, new analysis from TransUnion found that many renters could benefit from the practice of rent payment reporting.
When rent payments were included in the credit file, TransUnion discovered consumers experienced an average increase of nearly 60 points to their credit score.
The analysis included data through March 2021 and also found that the consumer population who generally has the least access to favorable terms for financial goods and services, the unscorable and subprime consumer cohorts, stand to gain the most with the largest credit score growth.
TransUnion’s analysis also showed that with the inclusion of rent payment tradelines in the credit file, approximately 9% of those consumers went from unscorable to scorable with an average credit score of 631 — placing them in the near prime score band, which is the VantageScore 3.0 range of 601-660.
TransUnion said this development represents a significant improvement for consumers that would have otherwise been deemed unscorable and highlights the importance of a uniform, universal data reporting format to improve credit visibility.
“Consumers that are classified as unscorable or below prime represent half of the renter population, yet the majority of those consumers are not receiving any credit for making those rent payments, which is generally the largest monthly payment they make,” said Maitri Johnson, vice president of tenant and employment screening at TransUnion.
“This places consumers that may already have thin credit files at a disadvantage toward further building their credit history,” Johnson continued in a news release “Wider adoption of rent payment reporting by the rental housing industry into the consumer reporting ecosystem can play an instrumental role in enabling those consumers to better demonstrate their creditworthiness and position them for greater financial success.”
TranUnion went on to mention that it analysis also found that 12% of consumers shifted to a higher score tier when rent payments were added to the credit file. This finding was especially prevalent among subprime consumers — again consumers within the VantageScore 3.0 range of 300 to 600 — who were reclassified as near prime.
Furthermore, TransUnion’s ResidentCredit has also found that 60% of renters may see their credit scores increase as early as the first month of rent payment reporting.
“Including rental payments in credit reports can help advance financial inclusion and elevate the credit standing of millions of consumers so they may participate more fully in the American financial system,” said Michael Turner, president of the Policy and Economic Research Council, a centrist think tank based in North Carolina.
“The inclusion of this information into the consumer reporting ecosystem is a win for everyone, especially borrowers because they give the credit that they deserve for making payments,” Turner continued in the news release from TransUnion. “This positive payment history can bring millions of credit-invisible persons into the American financial mainstream.”
For more information on ResidentCredit, TransUnion’s rent payment reporting solution, visit https://www.transunion.com/product/residentcredit.
Auto Search Technologies’ transition to becoming VehiclesNETWORK continued on Wednesday as 700 Credit gained certified provider status from VehiclesNETWORK for its consumer pre-qualification (QuickQualify) and full credit application (QuickApplication) platforms.
Now dealers who use VehiclesNETWORK to build and manage their websites can elect to add these two solutions to increase the value of sales and finance leads.
QuickQualify can provide dealerships with a consumer’s current FICO score and full prequalification credit report to help in aligning consumers for the right auto loan without posting a hard credit inquiry. The simple data form supported by an informative video do not require the consumer’s Social Security Number or date of birth, which can help to engage more consumers and drive more valuable leads from a dealership’s website.
QuickApplication can replace traditional credit applications simplifying the process and allows for population of the application into AppOne, CUDL and RouteOne.
“We are very pleased that VehiclesNETWORK has certified our credit applications for their customers’ websites,” 700Credit managing director Ken Hill said.
“Empowering dealerships to capture more of their web site traffic and insight into their customers while enabling consumers to understand what type of vehicles and payments they qualify for without impacting their credit is a win-win for the dealership and the consumer,” Hill continued.
VehiclesNETWORK chief executive officer Chris Jackson recapped the company’s recent activities and what this relationship with 700Credit means.
“Over the last few months, Auto Search Technologies, Inc. is sporting a brand-new look and logo — VehiclesNETWORK an apogee company. These are exciting times for our company — our continued growth has brought new partnerships, new clients, more team members and helped us expand into all areas of the online automotive marketing world,” Jackson said.
“With that in mind, we have organized an exclusive partnership with 700Credit who offers a super sharp pre-qualify tool that does not impact your customer's credit and gives you a really good profile of worthiness so you can work a better deal,” Jackson continued.
“This pre-qualify tool will help you convert quickly for this very important tax-time season placing more money on your bottom line,” Jackson went on to say.
For more information on the partnership, call (866) 273-3848.
Officials from 700Credit recently finalized another alliance to make their credit reports, compliance solutions and consumer pre-qualification products available to more dealerships. The latest relationship is with Advent Resources, which offers Advent DMS, a cloud-based platform for dealers.
The companies noted this new 700Credit integration can provide dealerships with seamless access to 700Credit’s credit report and compliance workflow that can optimize the sales process.
“The Advent Resources DMS is truly revolutionary with a strong following in the automotive industry. We are very thrilled to have Advent as a partner and welcome their customer base to our 700Credit family,” 700Credit managing director Ken Hill said in a news release.
“This integration will maximize efficiencies for dealerships and expedite the purchase process,” Hill continued.
Advent Resources chief executive officer Tim Gill added, “Our job at Advent is to partner with vendors like 700Credit to enable data and workflow in the most efficient way possible for transaction processing.”
Gill added: “700Credit meets this criterion and we are excited to be working with them.”
The relationship with Advent Resources arrived just a couple of weeks after 700Credit finalized a partnership with NCompassTrac to boost credit-driven dealer campaigns.
For more information about 700Credit, visit www.700credit.com. To learn more about Advent Resources, go to www.adventresources.com.
Experian confirmed what you might also be seeing in your F&I office or underwriting department. Consumer credit scores are generally getting a bit higher.
According to its annual State of Credit report, Experian said Americans' average credit score has increased 2 points year-over-year to 682. While people are taking on slightly more credit card, mortgage and nonmortgage debt year-over-year, analysts found delinquency rates are decreasing on average.
“We’re seeing a promising trend in terms of how Americans are managing their credit as we head into a new decade with average credit scores increasing 2 points since 2018 to 682 — the highest we’ve seen since 2011,” said Shannon Lois, Experian’s head of analytics, consulting and operations.
“Average credit card balances and debt are up year over year, yet utilization rates remain consistent at 30%, indicating consumers are using credit as a financial tool and managing their debts responsibly,” Lois continued.
When comparing the borrowing behaviors of men and women, Experian’s State of Credit report revealed woman have a 4-point lead over men with an average credit score of 686 compared to 682. While men and women both maintain a utilization rate of 30%, differences in how they manage credit include:
— Men carry more non-mortgage and mortgage debt than women at $27,314 and $220,421 respectively; compared to $24,176 and $203,630.
— Women have more credit cards (3.17 compared to 3.01) and retail cards (2.83 compared to 2.13) but carry lower balances with an average credit card balance of $6,569, compared with $6,872 and an average retail card balance of $1,858 compared to $2,087.
— Men have a slightly higher 90+ days past due delinquency rate (34% compared to 33%).
As part of the annual study, Experian also ranked states by average credit score in 2019.
Minnesota, Vermont, South Dakota, New Hampshire and Massachusetts are the top-ranking states in the nation with prime credit scores of 705 or more.
Mississippi, Louisiana, Alabama, Texas and Oklahoma are the five lowest-ranking states with credit scores below 660.
Experian’s analysis is based on a statistically relevant sampling of Experian’s consumer credit database from Q2 2017, 2018 and 2019. Analyzed credit files contained no personally identifiable information. Credit scores are based on VantageScore (range 300 – 850).
Experian director of consumer education and awareness Rod Griffin looked at the data in the complete report and offered this assessment.
“Understanding the factors that influence their overall credit profile can help consumers improve and maintain their financial health,” Griffin said.
“Credit can be used as a financial tool. Through this report, we hope to provide insights that will help consumers make more informed decisions about credit use as we prepare to head into a new decade,” he went on to say.
Two firms finalized an integration this week to make individuals’ credit scores more readily accessible earlier in the vehicle-sales cycle to help dealers and finance companies.
CoreLogic, a global provider of property information, insight, analytics and data-enabled solutions, announced that CoreLogic Credco integrated its Three-Bureau PreQual credit report and score solution on eLEND Solutions, an automotive technology company specializing in online and in-store credit and finance solutions.
The companies indicated the integration of the prequalification solution can give CoreLogic Credco customers who use eLEND instant, single-source access to a consumer’s credit report and FICO score from all three national credit bureaus — Experian, TransUnion or Equifax.
The Three-Bureau PreQual solution from CoreLogic Credco is a soft inquiry credit report and score that can provide dealers with an efficient, inexpensive and convenient way to prequalify potential buyers earlier in the sales cycle. The solution leverages a soft inquiry as opposed to a traditional credit report’s hard-pull, so a consumer’s credit score is not negatively impacted.
“We are excited to make our new Three-Bureau PreQual solution seamlessly available to all of the auto dealers currently using eLEND,” said Colby Park, senior leader of automotive credit solutions for CoreLogic. “We have found that dealers like the solution because it allows them to effectively manage their credit reporting costs while efficiently pre-qualifying prospective car buyers earlier in the process.
“Consumers benefit because, unlike a traditional hard-pull credit report and score, it doesn’t negatively impact their credit score when it matters most — like when they are shopping for a car and trying to understand their eligibility for financing. It’s a win-win,” Park continued in a news release.
Pete MacInnis, chief executive officer at eLEND Solutions, added, “We’re dedicated to providing tools that help auto dealers sell cars faster to improve their profitability and the consumer experience.
“Adding access to soft inquiry credit pulls through Three-Bureau PreQual will help set our auto dealer network up for future success by increasing speed and transparency within the sales cycle. Quickly providing access to additional insights into consumers’ credit standing, without impacting their credit score, will benefit consumers and auto salespeople alike,” MacInnis went on to say.
The Three-Bureau PreQual credit report and score are currently available by contacting CoreLogic Credco Specialists at (800) 694-1414 or via email at [email protected].
For more information about the Three-Bureau PreQual credit report and score from CoreLogic Credco, visit credcoservices.com/credit-services/three-bureau-prequal-solution.
Perhaps the auto-finance applicant who arrives through a dealership website portal and eventually lands in your company’s underwriting department might have a more robust file, thanks to enhanced efforts from Experian.
As part of its global commitment to financial inclusion and literacy, Experian this week launched Boost America, a marketing and social media campaign that includes a collaboration to promote credit management with award-winning actor, author and philanthropist Hill Harper.
Experian’s goal is to inspire and empower the more than 100 million thin-file (four or less trade lines) consumers in the United States who may not have access to quality credit to try Experian Boost, what the bureau said is a free online financial tool that can allow consumers to add positive payment history from utility and telecommunications accounts directly into their Experian credit file for an opportunity to increase their credit scores instantly.
“At Experian, our fundamental mission is to help consumers establish their creditworthiness. This is critical, because a subprime credit score will cost the average U.S. consumer approximately $200,000 more throughout the course of their life,” said Jeff Softley, president of direct to consumer at Experian Consumer Services.
“We believe partnering with Hill Harper, such a respected activist, will help us reach consumers across the country with credit education in a way that inspires Americans to want to better manage their credit profile,” Softley continued in a news release.
Harper, currently playing Dr. Marcus Andrews on the ABC drama “The Good Doctor,” is known for his activism promoting financial literacy and his bestselling financial books including “The Wealth Cure: Putting Money in Its Place.” This week, he was in Detroit at his Roasting Plant coffee shop to talk “credit over coffee” with local residents.
Over the next few months, Harper will address credit management via speaking engagements, social media, blog posts and videos.
To follow Harper and be a part of the discussion, go to www.experian.com/boostamerica, and follow hashtag #BoostAmerica. Consumers can also engage with Harper during Experian’s Twitter #CreditChat on May 15 from noon to 1 p.m. PT.
“I’m always excited to empower Americans by helping to increase their financial literacy and, now with this campaign, bring awareness to the importance of credit scores in our lives,” Harper said.
“With more than half of U.S. consumers (56%) having a low credit score, the time is right for an education campaign focused on credit literacy and that shows how tools like Experian Boost can benefit individuals.”
Since the Experian Boost launch in March, results show:
— Cumulatively, more than 3 million points have been added to FICO scores via Experian Boost.
— Nearly two-thirds of consumers who completed the initial Experian Boost process increased their FICO Score.
— Among those who increased their FICO Score, the average score increase has been more than 13 points, and 13% moved up in credit score category.
Back in December, Experian explained how the platform is intended to function.
Through the new tool, consumers can grant permission for Experian Boost to connect to their online bank accounts to identify and access utility and telecommunications payments. After a consumer verifies the data and confirms they want it added to their Experian credit file, an updated FICO score is delivered in real time.
“Globally, we are constantly innovating and leveraging technology to find new ways to help consumers gain access to quality credit, while promoting fair and responsible lending,” Experian Global chief executive officer Brian Cassin in a news release.
“We are committed to financial inclusion, and Experian Boost is the latest example of our efforts to increase consumer awareness of credit’s impact and value while giving them greater control,” Cassin continued.
Experian reiterated consumers with thin credit files (less than five trade lines) and scores between 580 to 669 will benefit the most from Experian Boost.
Experian went on to stress that the potential impact is significant as consumers with low or subprime credit scores often face higher interest rates when trying to gain access to credit.
For example, Experian estimated a consumer with a FICO score of 720 will pay $4,020 less for a $10,000, five-year vehicle retail installment contract — saving $67 a month compared to someone with a score of 500.
“Limited credit activity and history are key barriers for consumers to achieve their financial goals,” Credit Builders Alliance executive director Dara Duguay said. “We fully support initiatives that promote financial inclusion and think Experian Boost could play an important role in overcoming that barrier. We look forward to seeing how Experian’s new platform impacts consumers.”
The bureau added that contributing consumer payment history to an Experian credit file can allow finance companies to make more informed decisions when examining prospective borrowers. Only positive payment histories will be aggregated through the platform and consumers can remove the new data at any time. There is no limit to how many times one can use Experian Boost to contribute new data.
Consumer contributed payment histories will be compiled through Finicity, a provider of real-time financial data aggregation and insights.
“Experian is a true pioneer in giving consumers control that could immediately impact their credit scores,” Cassin said.
“Experian Boost marks our next step in delivering the most innovative and consumer-centric solutions, supporting our mission to be the consumer’s bureau and bringing lenders and borrowers together more efficiently than ever before,” he went on to say.
Our series of episodes originating from the Vehicle Finance Conference hosted by the American Financial Services Association continues with a conversation including Craig Stokum, who is director of sales in automotive for ID Analytics.
Nick asked ID Analytics about alternative data and how it can be leveraged by auto finance companies to enhance underwriting, especially with the subprime space.
The full episode can be found below.
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Top executives from Equifax, Experian and TransUnion all appeared on Capitol Hill on Tuesday for a hearing orchestrated by the U.S. House Financial Services Committee, which is seeking revamps to how credit reporting is completed.
And one of the companies offered six recommendations to assuage concerns about what some lawmakers are considering to be outdated practices and protocols.
According to a committee memorandum for Tuesday’s event, lawmakers explained why they summoned Equifax chief executive officer Mark Begor, Experian chief executive officer Craig Boundy and TransUnion president and chief executive officer James Peck.
“Our nation’s credit reporting system has an impact on almost every American. Credit scores and credit reports are increasingly relied upon by creditors, employers, insurers and even law enforcement. Yet it has been more than 15 years since Congress enacted comprehensive reform of the consumer reporting system, and there are numerous shortcomings with the current system that need to be addressed,” lawmakers said.
“In 2017, Equifax experienced a cybersecurity breach so massive that it affected approximately 148 million consumers, which, in addition to releasing the personally identifiable information of approximately half of all Americans, also highlighted deficiencies in the credit reporting system. Furthermore, many have experienced financial and other forms of distress due to incomplete or erroneous information on their consumer credit reports,” lawmakers continued.
“While a few provisions intended to improve the consumer reporting system were enacted into law last year, some have argued for comprehensive reforms to make the system more consumer oriented. Other jurisdictions, like California and the European Union, have taken steps to empower consumers to have more control over their data,” lawmakers went on to say.
Opening statements from Begor, Boundy and Peck all emphasized how each company strives to be as accurate as possible when it comes to its primary function — credit reporting. They each discussed improvements made to combat cyberthreats and more.
Begor began his testimony during the hearing by acknowledging and apologizing for the breach.
While I was not a part of the Equifax team when the cybersecurity incident occurred in 2017, I certainly recognize the disruption and impact that the cyberattack caused for consumers and our customers — and I deeply regret what happened. I also understand that our regulators and lawmakers undoubtedly felt, and continue to feel, a strong duty to ensure that the financial ecosystem is functioning in a way that benefits consumers, safeguards their personal data and is fueled by accurate and complete information,” Begor said.
“At Equifax, we too share that sense of obligation. Credit reporting agencies like Equifax are trusted to protect the personal data we hold, to provide accurate information to financial institutions making important risk decisions and to facilitate greater access to credit for consumers. I am committed to making improvements to our processes so that consumers have a seamless and positive experience when they are facing some of life’s pivotal moments — such as applying for a mortgage, financing an education or buying a car,” he continued.
Boundy stated that Experian agrees with the committee looking to help underserved consumers, keeping data safe, enhancing report accuracy and expand financial inclusion.
“Credit bureaus accurately compile individuals’ payment histories from creditors so lenders can use this data to make better lending risk decisions,” Boundy said. “Good lending decisions for credit cards, autos and mortgages mean fewer defaults. Fewer defaults mean lower cost of credit for consumers and greater availability of consumer credit across the economy.
“Credit bureaus helps stabilize the safety and soundness of the nation’s consumer lending sector,” he continued.
And to keep that stability intact, Peck spelled out six improvement recommendations for lawmakers to consider. They included:
1. More timely updates of critical credit events
2. Establish new standards for reporting student loan data
3. Increase the number of Americans able to access credit
4. Help improve scores and access to credit innovations
5. Protect Social Security Numbers
6. Enhance financial education
“The credit reporting agencies play a pivotal role in the efficient and stable functioning of the nation’s credit system. We essentially act as curators, collecting and assembling information about consumers from lenders, creditors, and others. We share that information with third parties in accordance with specific legal and regulatory requirements, including requirements that dictate who is permitted to obtain consumer credit information, under what circumstances, and for what purpose,” Peck said.
“No other economy in the world offers consumers the quick and straightforward access to credit that we do in the United States. This capability provides opportunities to people and gives our economy a valuable global edge,” he went on to say.
A quartet of analysts took a deep look at the auto finance data after the Federal Reserve Bank of New York’s Center for Microeconomic Data released its Quarterly Report on household debt and credit on Tuesday.
At first blush, it might look inflammatory that the New York Fed data fueled by Equifax showed that more than 7 million people had an auto finance contract at least 90 days delinquent by the time 2018 finished. However, the data set also pointed out that more than 89 million people have some form of auto financing — a lease or retail installment contract. That’s the highest figure ever recorded, according to the Fed data from Equifax that goes back to 1999.
All told, auto financing surged by $53 billion year-over-year to close 2018 at $1.27 trillion; again the highest figure ever recorded.
While perhaps collection departments, forwarding companies and repossession agents will see a surge of activity this year, New York Fed experts offered some clarity. Andrew Haughwout, Donghoon Lee, Joelle Scally and Wilbert van der Klaauw collaborated on the Federal Reserve Bank of New York Liberty Street Economics blog for a post titled, “Just Released: Auto Loans in High Gear.”
They wrote, “After years of growth among borrowers across the credit score spectrum, 2018’s strength in auto loans was primarily driven by those originated by the most creditworthy individuals, while originations to those with scores below 720 have leveled off, albeit at high volumes. The high volume of prime originations has caused a quality-shift in the outstanding pool of auto loans and, as of the fourth quarter of 2018, 30 percent of the $1.27 trillion in outstanding debt was originated to borrowers with credit scores over 760.
“Meanwhile, the share of total auto loans outstanding that was originated to subprime borrowers fell to 22 percent. In fact, these percentages would suggest that the overall auto loan stock is the highest quality that we have observed since our data began in 2000,” they continued.
“However, with growth in auto loan participation, there are now more subprime auto loan borrowers than ever, and thus a larger group of borrowers at high risk of delinquency,” the experts went on to say.
The report went on to mention that auto financing is just part of what’s pushing overall debt to new highs.
The report showed that total household debt increased by $32 billion (0.2 percent) to $13.54 trillion in the fourth quarter of 2018. It was the 18th consecutive quarter with an increase, and the total is now $869 billion higher than the previous peak of $12.68 trillion in the third quarter of 2008.
Furthermore, analysts found overall household debt is now 21.4 percent above the post-financial-crisis trough reached during the second quarter of 2013.
The report is based on data from the New York Fed’s Consumer Credit Panel, a nationally representative sample of individual- and household-level debt and credit records drawn from anonymized Equifax credit data.
Haughwout, Lee, Scally and van der Klaauw acknowledged that auto finance delinquency rate of 2.36 percent as of the end of 2018 is much higher than the reading of 1.5 percent seen in 2012. But they also viewed it in the context of how many vehicles have rolled over the curb, filling finance company portfolios during that span.
“The surging auto loan industry has been on our radar for more than five years now. But, the level of loan originations has been commensurate with auto sales, with a steady 50 to 60 percent financing share of combined new and used vehicle purchases — a percentage surprisingly stable in our sample period, which suggests that car loans have been tracking the growth seen in motor vehicle sales,” they wrote in the blog.
“Although rising overall delinquency rates remain below 2010 peak levels, there were over 7 million Americans with auto loans that were 90 or more days delinquent at the end of 2018. That is more than a million more troubled borrowers than there had been at the end of 2010 when the overall delinquency rates were at their worst since auto loans are now more prevalent,” they continued.
“The substantial and growing number of distressed borrowers suggests that not all Americans have benefitted from the strong labor market and warrants continued monitoring and analysis of this sector,” they concluded.
