AUSTIN, Texas (3/3/16)--Much has been made of the new players in the lending space who are eschewing the traditional three-digit credit score as sole determiner of creditworthiness. Perhaps they have taken a look at credit unions’ playbook of holistic lending practices.
For instance, online lender SoFi proclaimed earlier this year that it would no longer use FICO scores in its loan qualification process. Instead, it is considering employment history, track record of meeting financial obligations and monthly cash flow minus expenses.
Sound familiar? It should, if you look to credit unions’ historic use of the “4 Cs of credit”--character, capacity, capital and conditions.
Alternative lenders see the benefits of looking beyond the traditional FICO score. There is a growing market of young consumers who don’t hold mortgages or auto loans, or use prepaid or debit cards instead of credit cards, said Brad Selby, a vice president at alternative lender Affirm (CreditCards.com Feb. 26).
Their FICO scores may not have been strong, said SoFi co-founder Dan Macklin, but this “thin credit history” population had overall financial records that indicated they were better credit risks (CreditCards.com).
Nearly one in four credit unions offer credit-builder loans, according to National Credit Union Administration Profile data. Overall, 43% of members have access to such loans at their credit union. Not only do borrowers secure better traditional credit scores but, in some cases, they also build healthy savings accounts.
The Filene Research Institute is collaborating with QCash, a digital lending platform that offers relationship-based underwriting to members in search of small-dollar, short-term unsecured loans. Consumers can apply via mobile apps and websites--an omnichannel experience that’s becoming the norm.