Consumers that have the ability to keep up with loan payments may still be turned down for financing on the car they want. Some are stuck in a rut because of limited credit history or a negative event that hurt their score.
But for some consumers, payment history can show they are more prepared to take on loans than their credit scores would indicate.
This new path to determine creditworthiness could be a win for dealers, lenders and consumers.
Alternative data -- beyond what the credit bureaus typically monitor -- can give dealers and lenders a fuller picture of consumers’ credit profiles, which may better position those consumers as good loan candidates.
TransUnion’s CreditVision Link program, for example, determines credit scores based on the time-series data credit bureaus typically gather. But it also provides data from alternative sources. The company introduced the program to lenders this month.
Time-series data shows the total amount borrowed over time and includes up to 30 months of historical information on each loan account, such as payment history in dollars paid and amount paid compared with minimum payment due, TransUnion said.
But alternative data adds perspective. It can include property and tax records and debit account and payday lending information. It can enable lenders to see how consumers manage loans not tracked by TransUnion as well as how they pay for magazine and online subscriptions. And it can give lenders a glimpse into a consumer’s home value and equity and tell lenders how long the consumer has lived at the same address and how many times he or she has moved, TransUnion said.
When TransUnion worked with a major auto lender to test the program, that lender’s loan approval rate went up 24 percent, TransUnion says.
As consumers with limited credit history enter the buying market, alternative data can help them receive a competitive loan offer to afford a more expensive car and more F&I products. Using more data helps lenders and dealers trust these consumers with an auto loan, even if their FICO score doesn’t support it.
At a time when many consumers are still trying to repair credit tarnished during the downtown and many more, especially young people, are just starting to build credit, the definition of “creditworthy” seems fuzzy.
TransUnion hasn’t started working directly with dealers yet, but the company says it plans to do so. Let’s hope programs like this catch on to boost dealers’ business and give deserving customers a chance to finance the vehicles they want.