SAN DIEGO-Credit unions should be seeing more competition from big banks that are loosening lending policies to reach more subprime borrowers.
ID Analytics, which provides an alternative credit score it said can be used to mitigate risk, especially in lower credit ranges, reported it is seeing increased interest among bigger banks in its Credit Optics product as those same banks seek to extend more credit to B and C borrowers.
Patrick Reemts, director of credit risk solutions for ID Analytics, said CUs have been much slower to use the alternative credit score. "The banks want to book more business, and they know they have to lend more outside of prime. But they want to do so without raising risk a great deal."
Reemts said Credit Optics is designed to be used in conjunction with a standard credit bureau score to give greater insight into borrowers' credit worthiness. But, he said, the score provides the most value to financial institutions when lending to borrowers below prime.
"B and C paper is where the traditional credit scores have struggled in the last few years. I am not picking on FICO, but using it as an example, if someone has a 780 FICO score they are a very good credit risk and Credit Optics is just additional decision information. But if someone has a 650 FICO, that score is far less accurate today than scores for prime borrowers. That's where Credit Optics plays a greater role in the lending decision."
Reemts said Credit Optics looks for signs of "struggles or challenges" borrowers may have in their lives outside of their mainstream financial commitments. Since ID Analytics has its roots in fraud prevention, Reemts said the company sees and keeps records of an "incredible" amount of applications people make for goods and services in areas such as subprime auto lending, payday lending, wireless services... "Areas that do not traditionally show up on credit bureau scores."
'Application Velocity'
The first thing Credit Optics does is look closely at "application velocity," said Reemts. "Especially seeing if someone is applying for a lot of business services, which is traditionally seen as a high-risk behavior. Wireless is something everyone is using and we have a great deal of visibility across the entire consumer base, whether prime, near prime, or subprime credit."
Credit Optics then examines the consumer's stability based on several years of "conduct," such as how often one has moved. Reemts said it is a very different method compared with the approach taken by credit bureaus, which focus on "matching. They say I know who Patrick Reemts is, so I will pull the data that is available on him. We are watching people move through time and space. So over the last four years we know you have moved twice and that both are apartments in nearby neighborhoods. That tells us something about the person."
Launched in November of 2007, Credit Optics returns a score from 1 to 99, with 99 being the best credit rating. It pulls data from a variety of businesses.
Reemts said pricing is tiered, based on volume of requests, and that costs are similar to a credit bureau report.
