Experian has introduced an innovative scoring model dubbed the “Credit + Cashflow Score.” This new system aims to create a more holistic assessment of consumer risk by integrating various data points. The incorporation of traditional credit data with consumer-permissioned financial information and alternative data marks a significant shift. As financial markets continue evolving, Experian’s latest tool offers a comprehensive way to understand consumer financial behavior. It could bring a fresh perspective to credit underwriting, potentially reshaping how credit decisions are made, particularly in a market overcrowded with incomplete consumer profiles.
Several months ago, Experian began laying the groundwork for this new scoring model through partnerships with agencies like Clarity Services. By leveraging data on over 220 million U.S. consumers and extending their reach to those without traditional credit histories, Experian aimed to address a gap within the credit risk assessment space. Previously, traditional credit scores did not account for a consumer’s overall financial wellbeing, like cash flow metrics, leading to possible discrepancies in credit evaluations. The current iteration of the model represents an effort to align credit scoring with broader financial realities.
How Will Credit + Cashflow Score Work?
The Credit + Cashflow Score by Experian merges its traditional consumer credit data with additional insights. Utilizing data provided by consumers voluntarily, the model evaluates income, spending habits, loan transactions, and bank account activity. With a 24-month trended data window, users can be assessed on how they manage their credit over time. This approach potentially represents a future-forward direction in underwriting, integrating personal financial analytics with legacy credit metrics.
Is Consumer Confusion on Credit Limit Calculation Being Addressed?
Indeed, at a time where most cardholders remain unclear on credit limit criteria, this initiative might enhance transparency. A recent report indicates that consumer confusion adversely affects spending habits and card loyalty, suggesting a clear need for Experian’s latest effort. By expanding its data sources, the company looks to provide deeper insights, bridging the gaps experienced by many consumers regarding creditworthiness assessments.
Vijay Mehta, Experian’s EVP and GM of global solutions and analytics, remarked on the broader role of technology in transaction trust, relevant in today’s digital world.
“AI is starting to redefine the speed, scale and intelligence of how businesses interact and transact,” he said.
This aligns with the newer holistic scoring approach, suggesting Experian may further refine its scoring systems with AI advancements.
Scott Brown, Experian North America’s group president for financial and marketing services, highlighted the model’s significance.
“Combining Experian’s data with information about how a consumer is managing their finances through open banking is the future of underwriting,” he noted.
This reveals the pivotal role of alternative data and changing dynamics in the financial decision-making process.
Overall, the Credit + Cashflow Score aims to integrate more elements of financial health into credit scoring processes. By recognizing broader aspects of consumer behavior, the model could provide lenders with a richer risk assessment tool. As AI continues to inform the financial landscape, the implications for both lenders and borrowers could be transformative. This tactical shift points to a potentially new way consumers might engage with their credit profiles and how creditors view consumer risk.
