New alt data forms can increase financial access: LendUp/Experian study

A new study from LendUp and Experian found reporting single-payment loan data, which is not typically shared with credit reporting agencies today, may provide a fuller picture of creditworthiness and in many cases lead to higher credit scores. According to the Credit Builders Alliance, a low credit score can cost a person more than $250,000 in interest and fees over the course of a lifetime.

Sasha Orloff

“Credit scores are just massively influential in modern American life,” said Sasha Orloff, cofounder and CEO of LendUp. “That’s why it’s important that the data that drives scores be as complete as possible to best reflect an individual’s fullest financial capability.”

Single-payment loans are just one of many indicators of financial health that have never been included in traditional credit scores. Other examples include rental payment history, cell phone bills and utility payments.

“As the consumer’s bureau, it is our top priority to help people gain access to credit, which they can use to better their lives,” said Alex Lintner, president, Experian Consumer Information Services. “Incorporating information from companies like LendUp gives us a more holistic picture of individuals’ creditworthiness. Consumers who may be invisible to lenders would be become visible and would be able to build credit for the first time, and companies could make fairer, more informed lending decisions.”

For this study, Experian and LendUp joined forces to explore the impact single-payment loan data can have on credit scores. The research, which looked at customers who have always repaid their LendUp loans on time, found that:

  • 85 per cent of this group would have higher credit scores, and 15 per cent would have significantly higher scores
  • The percentage of customers who have subprime credit scores — defined by Experian as a score between 300-600 would drop from 79 per cent to 65 per cent
  • The percentage of “thin-file” customers, consumers at a significant disadvantage in obtaining loans because they have fewer than five items in their credit histories, would drop from 11 per cent to four per cent

The research also found LendUp’s payment plans provide a grace period that helps borrowers avoid potentially damaging defaults. While 72 per cent of individuals who default on a single-payment loan would receive a lower score, this figure drops to 10 per cent for individuals who took advantage of LendUp’s extension options.

“Our mission is to provide anyone with a path to better financial health, and we’re thrilled to work with organizations like Experian that are investigating new ways to advocate for consumers,” Mr. Orloff said. “These findings certainly reinforce a premise that we’ve considered for a long time, that including single-payment loan data in credit decisions has the potential to improve terms for millions of Americans by better recognizing financially responsible borrowing practices. Whenever possible, we want to help our customers improve their ability to access quality credit, and we’re proud to be on the frontlines of this kind of innovative and inspiring change.”

The consumer finance industry, individuals and the government all play a part in moving the conversation forward on single-payment loan data, allowing more consumers to build credit and improve their financial health. Examples of actionable next steps:

  • Advocating that “alternative lenders” report this data on behalf of borrowers
  • Continuously striving to find ways to boost repayment through product features and partnerships
  • Encouraging lenders to make the most informed credit decisions they can by seeking this data on consumers with subprime credit scores