nilson report - scoring thin credit files
DESCRIPTION
Scoring Thin Credit FilesThe three major credit bureaus – Equifax, Experian, and TransUnion — maintain records on 172 million adults that contain enough data on fle to create a credit score using automated systems. Those adults represent 75% of the total adult population in the U.S. There are another 24 million adults about whom the credit bureaus have no information at all. And falling between those categories are 33 million adults about whom the bureaus have fles that contain insuffcient information for automated underwriting. These people are said to have “thin” fles. In terms of credit risk, thin fles range from under banked sub-prime customers to the very wealthy super prime.TRANSCRIPT
scoring thin credit filesThe three major credit bureaus – Equifax, Expe-rian, and TransUnion — maintain records on 172 million adults that contain enough data on file to create a credit score using automated systems. Those adults represent 75% of the total adult population in the U.S. There are another 24 mil-lion adults about whom the credit bureaus have no information at all. And falling between those
categories are 33 million adults about whom the bureaus have files that contain insufficient information for automated underwriting. These people are said to have “thin” files. In terms of credit risk, thin files range from unbanked sub-prime customers to the very wealthy superprime.
No common definition of a thin file is agreed upon by the bureaus, but typically the term means a file with less than five current tradelines or credit events such as auto loans, credit cards, mortgages, student loans, personal loans, install-ment loans, as well as credit inquiries — requests
by a lender for a consumer’s credit report or credit score, which are included in consumer files even if the person has not yet established a tradeline. Full files by comparison average 13 to 14 tradelines that have been updated in the last six months.
About 15% of all credit card applications are rejected by issuers, not because the consumer has a history of bad credit, but for lack of enough positive credit information or no information at all. This has card issuers pressuring bureaus to develop methods for reaching these new pros-pects. Over the past two years, bureaus have tested the predictive value of nontraditional data related to payment histories rather than credit histories — data generated by checking accounts or debit cards, utility bill payments, rent pay-ments, rent-to-own accounts, payday loans, etc. Sources of this data include ARC Systems, Austin Logistics, ChoicePoint, Credco, DataX, eBureau, eFunds, First Advantage, Innovis, and Teletrack.
Out of the 24 million Americans with no credit files as many as half might qualify for credit. These people include divorcees and widows who relied on their husbands for credit, college students, people who rely exclusively on check-ing accounts, and foreign nationals who may or may not be living in the country legally. Foreign nationals are also included in the half who would not be likely to qualify, along with the unem-ployed, welfare recipients, the institutionalized, and recent bankrupts.
Efforts by risk management companies to gener-ate enough information to apply credit scoring technology to the 25% of U.S. adults with thin or no files includes Fair Isaac’s Expansion Score credit risk model, which searches databases holding 654 million payment records includ-ing checking accounts, membership clubs, cell phones, and utilities. The company claims it can generate credit scores for over 70% of the people with thin or no files, and that typically 35% of
credit card scoring – u.s. FICO Market Adult Population Market Negative Score Segments as of July 2007 Saturation Risk*
Unscored No Records 24,000,000 <5% ? Unscored Thin Files 33,000,000 <12% ? Unscored Subtotal 57,000,000 500-649 Subprime 61,000,000 55% 40% 651-749 Prime 99,000,000 92% 7% 750-800+ Superprime 12,000,000 86% 2% Scored Subtotal 172,000,000 Bureau Files 202,000,000 Adult Population 229,000,000Note: This chart contains industry estimates and pooled results that vary between bureaus, scorers, and databases. *Likelihood of becoming 90 days or more delinquent within the fi rst two years.
©2007 The Nilson Report
Thin File Industry Results, 2nd draft, September 12, 2007, 9:41 AMLLW changed > to <, changed the Adult Population heading to include as of July 2007 and removed that footnote, changed Sub Prime to Sub-prime, changed Super Prime to Superprime, fi xed typos in Likelihood and becoming
Posted with permission from The Nilson Report, Carpinteria, California.
© HSN Consultants Inc. 2007 THE NILSON REPORT Reproducing or allowing reproduction or dissemination of any portion of this newsletter in any manner for any purpose is a copyright violation subject to substantial fines. Yearly Subscription for 23 print and electronic issues is $1,295. ISSN 1087-8718THE NILSON REPORT: 1110 Eugenia Place, Suite 100, Carpinteria, CA 93013 USA • PHONE (805) 684-8800 • FAX (805) 684-8825 • [email protected]
SEPTEMBER 2007 Issue 887For 37 years, the leading publication covering payment systems worldwide.
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these receive scores between 640 and 850, representing a range from the upper end of the subprime credit market to the superprime market.
Equifax’s MarketMax, developed by LexisNexis, generates a risk assessment score by applying statistical techniques that draw information from nontraditional databases. MarketMax also iden-tifies emerging credit customers with thin or no files, paying par-ticular attention to recent college graduates and newly arrived im-migrants. MarketMax can score prospects for auto loans, general purpose credit cards, retail credit cards, and wireless telecom ac-counts.
LexisNexis markets its own
product called RiskView that lets card issuers identify and predict the risk of consumers with thin or no credit files based on 300 at-tributes. RiskView uses databas-es of public records to consider three factors: stability (based on LexisNexis’s history of address records), ability to repay (based on the prospect’s asset profile), and willingness to repay (based on an analysis of bankruptcy, liens and judgments, criminal history, and utility information).
Experian’s soon-to-be-released emerging market risk model combines traditional credit data sources along with nontradition-al sources it describes as “credit-like.” The company claims that its research has validated that monthly payment data from util-ity and energy companies, prop-erty rental, retail payment, and purchase data has the greatest impact on scoring thin files. Ex-perian finds that credit-like data
moves 10% of an analysis sample from unscorable to scorable.
TransUnion’s L2C Thin File Model uses nontraditional data
sources including payday loans, rental payment histories, and debit card data to help score un-derserved consumers. Other data sources include utility bills and telecom payments, which Tran-sUnion has been collecting since the 1980s. Prior issues: 885, 883, 880, 873, 869, 868, 867, 865
contActst Equifax John Carter is Sr. VP, Data Acquisitions in Atlanta, Georgia, (404) 885-8300, [email protected].
t Experian Zaydoon Munir is Sr. VP, Marketing in Costa Mesa, California, (714) 830-7849, [email protected].
t Fair Isaac Lisa Nelson is VP, Global Scoring in Minneapolis, Minnesota, (612) 758-5469, lisanelson@ fairisaac.com.
t LexisNexis Tom Brown is VP, Financial Services Market in Boca Raton, Florida, (561) 999-4422, [email protected].
t TransUnion Chet Wiermanski is VP, Analytical and Decision Services in Chicago, Illinois, (312) 466-7827, [email protected].
Posted with permission from The Nilson Report, Carpinteria, California.
About 15% of All credit cArd ApplicAtions Are rejected due to A lAck of positive credit informAtion.
SEPTEMBER 2007 Issue 887For 37 years, the leading publication covering payment systems worldwide.
© HSN Consultants Inc. 2007 THE NILSON REPORT Reproducing or allowing reproduction or dissemination of any portion of this newsletter in any manner for any purpose is a copyright violation subject to substantial fines. Yearly Subscription for 23 print and electronic issues is $1,295. ISSN 1087-8718THE NILSON REPORT: 1110 Eugenia Place, Suite 100, Carpinteria, CA 93013 USA • PHONE (805) 684-8800 • FAX (805) 684-8825 • [email protected]
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