Somewhere between 50 and 80 million U.S. consumers have little or no credit history. That’s somewhere in the range of 15 to 25 percent of the U.S. population. What this means is that a massive number of people in America are “unscoreable” by most traditional models.
At the same time, acquiring new members is becoming increasingly difficult for credit unions. Competition and financial consumer expectations have never been more complex and fast-moving.
What if there was a way for credit unions to avoid turning away “unscoreable” consumers for loans and other services? What if there was a way to welcome them without increasing a cooperative’s risk profile?
No Credit Does Not Mean Bad Credit
Just because a consumer is unscoreable by most traditional credit scoring models doesn’t mean he or she won’t be able to pay back a loan. Several alternative models available today can help a lender evaluate a consumer’s ability to repay. Below are some examples, along with the types of data they incorporate into their models:
eCredable – Bills, such as rent, utilities, mobile phone, cable/satellite TV and insurance
Cignifi – Mobile phone behavior data
First Access – Prepaid mobile-phone payment histories
TrustingSocial – Social, web and mobile data
Kabbage – e-commerce histories from sites like Amazon
Experian’s Emerging Credit Score – Internet and direct-marketing purchases, property and asset records and telecommunications and utility data
TransUnion CreditVision Link – Property tax records and checking/debit account records
LexisNexis RiskView – Residential stability, asset ownership, derogatory status, life-stage analysis
One thing all these companies have in common: They’re using big data to create better outcomes for consumers and meaningful value for lenders. And credit unions have the opportunity to do so, as well.
Alternative sources of consumer data, such as utility records, cell phone payments, medical payments, insurance payments, remittance receipts, direct deposit histories and more, can be used to build better risk models. Armed with this information – and with the proper programs in place to ensure compliance with regulatory requirements and privacy laws – credit unions can continue making responsible lending decisions while better serving the underserved.
How One Organization Successfully Uses Alternative Credit Scoring
Kinecta Federal Credit Union uses an alternative data score from LexisNexis known as Riskview to assess creditworthiness for traditionally unscoreable borrowers. The model factors in data from sources like utility bills, public records, address and employment stability, among many others alternative data elements. The result is a Fair Credit Reporting Act (FCRA) regulated score.
By using nontraditional credit verification methods, Kinecta is able to approve more than 60 percent of the applications it receives. Since 2014, Kinecta has made about 20,000 loans for more than $30 million.”
How Alternative Credit Scoring Fits the Credit Union Philosophy
Credit unions exist to help people, not make a profit. Their goal is to serve all members well, including those of modest means – the very people most likely to be unscoreable by traditional credit scoring models. Many of these consumers fall into one or more of the following segments:
Alternative credit scoring provides credit access to consumers who may otherwise be turned down for a loan or forced to turn to a predatory lender. Using payment history and other data sources to evaluate a consumer’s creditworthiness is an excellent example of “people helping people” – one that benefits both consumers and credit unions alike.Leave a comment
Something was changing in the community. The staff of Milwaukee’s Prime Financial Credit Union (PFCU) could feel it. More visitors to the 90-year-old cooperative were asking for Spanish translators and fewer came equipped with the basics of U.S. financial system awareness.
“It got to the point where it was a topic of conversation at every meeting,” said Colleen Jakubowski, PFCU’s chief operating officer. “We knew there was a Hispanic community here. But we didn’t know how large it was, nor how underserved many of the members of that community were.”
Her colleague, PFCU Director of Organizational Development Amy Goratowski, agreed: “Over the years, we had noticed less volume in our branches. It became clear we needed to devote a location to the Hispanic community – somewhere they would feel immediately welcome and comfortable. We’re excited to be breaking ground on that branch as we speak.”
Talk with Jakubowski and Goratowski and you can feel their excitement about the future of Hispanic membership growth at PFCU. The pair have a self-described justice mentality that has intrinsically motivated them to pursue improvements in the way the cooperative serves this influential and growing segment of Milwaukee – a city that saw its Hispanic numbers rise nearly 175 percent from 1990 to 2014. “We really get excited by the prospect of making things better for people,” said Jakubowski. “It’s what we like to do.”
Rich Experience Adapting Products and Services
Because the credit union serves a high percentage (70 percent) of members who reside in low-income neighborhoods, there is rich experience adapting products, training employees and making community connections already within PFCU. Jakubowski and Goratowski believe these competencies are helping them achieve early success in their Hispanic membership growth plan. “By serving segments that need special assistance or special products, we are actually getting back to our roots,” said Jakubowski. “Bigger financial institutions are about making money. That’s not us. We’re about reaching those people that need us most.”
Getting back to the credit union’s roots was an objective that came after a lot of soul searching. The only Wisconsin credit union to survive conservatorship, PFCU emerged ready to recommit to the right people. “We took a hard look at everything we were doing,” said Jakubowski, who noted the credit union is fully staffed at 55 with four active branches and a strong net worth. “What we discovered is we were doing a better job chasing people who maybe didn’t need us rather than serving those who did. These were the people we saw every day.”
Among the discoveries made during what Jakubowski calls the “enlightening period” was that many of the credit union’s most loyal members were not taking advantage of beneficial products, such as low-rate credit cards or fee-free checking accounts. As a result, leadership began to seek out grants and designations that could help them execute on their reignited mission to help community members become and stay financially healthy. They achieved a low-income designation from the NCUA, which has allowed them freedom to pursue new objectives, such as those inside the Hispanic membership growth plan.
Products Designed to Build Credit Histories
Many of the products and services already on the PFCU roadmap are ideal for the local Hispanic community, Coopera research has found. Payday loans, for example, are providing a much-need service as new regulatory requirements are expected to shutter some payday lending businesses. A responsible lender, the credit union will only allow one loan at a time, and each loan will be capped at $500. Because the credit union reports on these loans to the credit bureaus, members who take advantage of the product will be building credit histories, an important step to establishing financial wellness.
PFCU’s credit rebuilder account, too, is a great match for many unbanked people in Milwaukee. Members can open the account immediately with zero deposit down, and there is no minimum balance. A portion of the funds goes to pay off debts, which helps members increase their credit scores. The credit union also offers certificates for as low as $250 and other loans for as low as $500.
To learn more about the strategic evolution of PFCU’s Hispanic membership growth strategy, download “Hispanic Member Growth Not Just for ‘Gateway States’ Anymore.”Leave a comment