New Credit Scoring Practices Provide Hope for Potential Borrowers
There are literally millions of people who fly under the radar of lending companies and banks, unable to secure loans because of conventional credit scoring practices. Some credit scoring companies, however, have come up with new methods of scoring credit that may make it possible for these folks to qualify for loans. This is big news that may prove to have small lending companies chomping at the bit to offer their services to this largely under-serviced sector of the population.
One lending company, FactorTrust in Roswell, Georgia, stated that they have credit information on well over 10 million non-prime borrowers that the big credit bureaus don’t possess. This company even provides its own auto finance risk scores to potential customers. Another lender in Connecticut, VantageScore, uses the available information from the big three credit bureaus, and now provides a revitalized scoring method that allows them to provide credit score on roughly 35 million people who used to be “not scoreable” by conventional credit bureau tactics. This new method has allowed millions of people to actually achieve a credit rating at, or in excess of 600. That score makes these people “near prime” borrowers who are eligible to take out short term credit loans!
So where are these lenders finding all of this valuable information about their potential clients? From billers that do not report their checks and balances to the big credit bureaus. These alternative scorers have established policies and procedures which allow them to report payments received faster and with more frequency than traditional credit scorers. These policies and procedures give these scoring agencies access to new customers that other lenders may find almost impossible to reach. Many of these potential customers have grown accustomed to using less traditional financial services to secure money when they need to make purchases.
The FactorTrust company stated that the data they use may help lending companies to lower first time default payment fees by as much as 50%, while reducing fraud and adding to customer’s knowledge of alternative lending practices. Even more impressive is the fact that this company can now secure real-time information from their customers, without waiting the obligatory weeks or months that used to be the norm in this industry.
Many nonprime lenders avoid reporting to the big credit bureaus. This allows the new scorers on the block to have access to borrowing and payment information that is simply never going to be available to the main three credit scoring bureaus. This may not sound like a big deal to people outside of the short term lending industry, but it may very well prove to be a game changer for small, short term loan providers all over the country!
Faster Data Collection for Improved Credit Scoring
The speed of reporting is a huge plus for these alternative credit scorers. Prime lenders often have to retrieve customer data on a monthly or even a quarterly basis. Nonprime lenders, however, typically report payment information daily or even in real time. This fact alone, allows the new credit scorers to speed up the reporting and approval process and to provide a more realistic view of what a potential borrower’s financial situation really looks like.
It may take some time for these new credit scorers’ methods to catch on. But with so many people lacking access to loans because of traditional credit scoring practices, it is only a matter of time before a new way of credit scoring takes hold and revitalizes the short term lending industry for good.
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