Residential Magazine

Get a Complete Picture of Your Borrowers

Financial data such as rent and cellphone payments can bring more clients to the table

By Steve Smith

In today’s increasingly competitive lending industry, bringing in additional loan applications to widen borrower pools is often easier said than done. With expanded financial data, that soon may change.

In the past, originators relied on traditional indicators such as prior loans or inquiries to determine the creditworthiness of borrowers. Today, however, originators can increasingly access a wide range of new data if borrowers give permission — including rent and utility payments, savings history and investments.

This empowers borrowers to take control of their financial lives. And it may help originators and their lender partners offer new and improved products.

Overlooked borrowers

According to the Consumer Financial Protection Bureau, one in 10 American adults (or 26 million people) are “credit invisible,” meaning they have no history with one of the three major credit-reporting agencies. Instead of dismissing potential borrowers due to a lack of credit history, however, lenders and the originators who work with them could one day reach more clients with better offerings by leveraging other consumer data.

New credit-scoring technologies like Experian Boost and the UltraFICO Score are taking advantage of expanded financial data. Such innovations promise to pave the way for a credit-scoring process that expands the dataset and that can, in time, reach the entire mortgage lending industry. If, for example, a younger consumer lacks years of credit history, alternative data sources like cellphone and utility payments can shed more light on a consumer’s ability to manage and pay back a loan.

With a more comprehensive understanding of a consumer’s overall financial fitness, mortgage companies can serve those who lack traditional loan qualifications — which will ultimately enable them to expand their borrower pool. The result? An influx of business.

Helping to engage more people within the financial-services industry has tremendous upside. Digital consulting company Accenture estimates that bringing unbanked consumers into the formal banking sector could generate up to $380 billion in new revenue worldwide.

Creditworthiness insight

Beyond paving the way for an uptick in business, expanded financial data has the potential to create a wide range of opportunities previously only dreamed of by these credit-invisible consumers. Big-ticket purchases, such as a car or a house, are rarely completed without the help of a loan. Given the financial well-being of most consumers, it’s easy to see why.

Nearly 80% of U.S. workers live paycheck to paycheck, according to a 2017 report from employment website CareerBuilder. This absence of financial flexibility is often reason enough to consider taking out a loan. Unfortunately for the millions of consumers who lack sufficient credit history, borrowing from a bank hasn’t always been an option.

One emerging population, millennials, exemplify those who haven’t had time to build a credit history or who typically use cash. Another group are those attempting to get back on their feet following a financial crisis. By granting access to an expanded set of their financial data, consumers can offer a more detailed and real-time look into their financial fitness.

Credit scores will continue to play a primary role in the mortgage industry for years to come, but there’s more that defines a consumer’s financial situation than a single number. Originators who take multiple sources of financial data into account can more easily appraise potential borrowers who lack a credit history altogether or even those who just need a boost of a few points to meet or improve their loan-qualification standards.

This insight into the creditworthiness of prospective borrowers can drive new business for lenders and originators while also helping consumers move one step closer to finalizing a big-ticket purchase. Rather than remaining on the outside looking in, impacted consumers could finally have the opportunity to realize their dreams.

Foiling fraud

Cybersecurity concerns are common across just about every industry — and mortgage lending is no exception. Sensitive information, such as a consumer’s credit history or financial data, is often targeted by sophisticated fraudsters. Additionally, such data also is manipulated by unscrupulous borrowers. Luckily, moving forward, this type of consumer data could help limit the potential for fraud.

Retrieved directly from a trusted financial institution with approval from the client, this data isn’t as exposed or as easily hacked as it might be with other transfer methods such as e-mail, fax or snail mail. And this direct bank-to-lender process virtually eliminates altered data.

Mortgage originators and borrowers can remain confident in the fact that this information is coming from a reliable partner. Banks and other financial institutions, as well as data-access and insights companies that are entrusted with financial data, implement a number of techniques, policies and technologies to secure data and provide a trusted environment.

Better yet, this data provided with client permission leads to a more convenient and secure lending experience for both mortgage originators and borrowers. Instead of sorting through stacks of paperwork, lenders and borrowers can quickly leverage a rich financial history unveiled through real-time access to transactions. This simplifies the lending process while also increasing accuracy and security.

Clearer picture

From a steady stream of new business to increased security, a crucial part of reaping the rewards of expanded financial data is using such information responsibly. Make no mistake — expanded financial data can go a long way toward painting a clearer picture of a potential borrower’s financial health. Credit history, however, still serves as the cornerstone of any mortgage application.

With more information at their disposal than ever before, mortgage originators face the challenge of capitalizing on new data while also adhering to traditional lending practices. Although expanded financial data may provide additional insight at some point in the near future, it’s important not to lose sight of credit scores when they’re made available. Striking a balance between the two types of data sources can help ensure mortgage originators have a strong grasp of a potential borrower’s financial well-being.

As new competitors enter the mortgage industry, lenders and originators must look for innovative ways to expand their borrower pools. By enabling consumers to leverage expanded financial data whenever possible, mortgage originators can eventually pave the way for borrowers who lack sufficient credit history, but possess the ability to pay back loans. Perhaps even more importantly, borrowers can move one step closer toward achieving their dreams while sensitive financial data may be more effectively secured.


  • Steve Smith

    Steve Smith is chairman, CEO and co-founder of Finicity, a leading financial-data access and insights platform enabling data-driven information that leads to smarter financial decisions. Through the Finicity application programming interface, financial institutions and fintech developers can access client-granted financial data to incorporate in financial-management, payment and credit-decision solutions.

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