New data from America’s payroll data connectivity platform windmill shows that innovation in credit scoring and lending is desperately needed as borrowers continue to be misclassified.
up to date consumer research US Lenders by Pinwheel Reveals It Misidentifies Borrowers Using Outdated and Inapplicable Credit Scoring Techniques.
It also revealed consumers’ willingness to share relevant data if it reminds them of more relevant products and services.
Main findings
One of the survey’s key findings was that 56% agreed that credit scoring methods are not transparent.
Given the importance of credit scores in the credit decision process, the lack of awareness of how they are calculated indicates that consumers are left out of a system that significantly impacts their financial health. Consumers do not trust the transparency and fairness of credit scoring.
As a result, consumers are missing out on financing opportunities by not being evaluated on the basis of their income. In this light, 53% agree that current credit ratings are unfair, and three-quarters believe credit scores should not be the only criterion for obtaining a loan.
Three-quarters of working Americans report that external factors have affected their credit score. These factors include a poor credit history, outstanding payments, and applying for multiple loans or credit cards in a short period of time.
People with less than $30,000 in income are more likely to have little credit history or too few credit cards, which will affect their credit score.
Poor credit history and too few cards contribute to the credit score of 19% of working Americans.
This leads to many feeling excluded from certain loans disproportionately affected by outdated lending/credit rating practices. I feel that I am not included in the system.
These results send a clear message to financial institutions that credit scoring and lending are in dire need of innovation.
Consumers want to connect their true financial situation with lenders. However, according to Pinwheel’s findings, current credit scoring does not achieve this.
Make credit decisions with better data
Pinwheel’s findings encourage financial institutions to consider including alternative data when making creditworthiness decisions.
Failure to adapt hurts both customers and profits. The naysayers will ultimately lose out to modern, inclusive lending practices.
Data show that the solution to this is to include consumer income more broadly. Having continuous, real-time access to income data helps lenders reduce risk. It will also be able to proactively respond to changes in borrower income and provide more personalized financial services.
Nearly half are willing to share access to financial data if it better reflects their financial situation. Many are interested in the ability to develop more personal financial products. Nevertheless, 42% say they have limited control over their personal financial data.