As a result, most "unscoreable" consumers pay bills and make purchases using cash, checks or debit cards – none of which is tracked by credit reporting agencies. And as the housing market continues to implode, more people will continue to rent instead of purchase, which means they won't have an established mortgage loan history for lenders to evaluate.
With profit margins eroding, financial institutions are looking to create new revenue opportunities by tapping into the billions of dollars in annual income represented by this currently underserved population.
Experian has launched a new credit scoring tool called Emerging Credit Score to help lenders "capitalize on missed opportunities" to "create new revenue opportunities" by factoring more than 25,000 attributes to measure thin or no-file consumers. It uses data from eBureau to track:
- Demographics
- Internet, catalog and direct-marketing purchases and payments
- Trades, inquiries and public records
- Property and asset records
- Telecommunications and utility data
- Industry specific and custom scores
Do Lenders Really Care?
While innovative ways of creating credit scores appear to be a boon for thin- or no-file consumers and financial institutions alike, the difficulty lies in having such scoring tools adopted by the banking industry. There already are a number of scoring models that purport to open the doors to this target population, including FICO's Expansion Score (released in 2004) and PBRC. Until banks use these tools on a regular basis to evaluate their prospects – something that has not been done industry-wide – the underserved population will not see much of a change. And if you have a traditional credit score from the Big 3, an expansion score will not be used in its place, which may seem particularly unfair if your credit history is rife with errors due to reporting mistakes or identity theft.
