May 27, 2018

Study: Supplemental Credit Data Can Boost Loan Chances

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Study: Supplemental Credit Data Can Boost Loan Chances

More applicants could qualify for a mortgage if lenders took a broader look at an applicant’s credit data, according to a new report by CEB TowerGroup, commissioned by CoreLogic. 

Alternative credit data or extra credit information -- like an applicant’s unsecured credit, payday lending, and property history -- are good indicators of an applicant’s true credit risk, and taking into account such additional information could help increase the number of people who qualify for mortgages, the study found. 

The study evaluated CoreLogic’s newly launched FICO Mortgage Score Powered, which takes into account supplemental credit data, and compared it to the traditional FICO score. The study found that both scores were accurate predictors of credit risk. 

"Traditional credit data and analytics continue to be relevant, but are not sufficient to satisfy the consumer credit reformation of today," says Craig Focardi, the CEB TowerGroup's senior research director. "As a result of the changes in consumer behavior, lenders cannot revert back to their prior mortgage underwriting policies. Too much damage has already been done to the market, consumers, shareholders, and investors." 

Before the recession, consumers would focus on paying off mortgage debts first, but now consumers focus more on paying other debts, such as credit card bills and car payments, as their chief priority. 

The study notes that if lenders adjusted their credit risk evaluation policies, they’d be able to better assess an applicant and determine whether they are a good candidate for a mortgage. Seventy percent of those evaluated in the study saw their credit score improve by taking into account alternative data. What’s more, a separate analysis showed that of 300,000 mortgage applicants, 3,100 of those applicants would receive a qualifying credit score of 700 using the supplemental credit data. 

The alternative credit information could particularly help mortgage applicants who have newly established credit files with good credit, those with limited information in their credit files but who have good alternative credit payment histories, as well as long-time renters who have no serious payment issues, according to the study. 

Source: CoreLogic

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