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It’s time to rethink
credit decisioning

presented by

1
It’s Time to Change How We
Think About Credit
The modern credit score is a powerful number. It’s the number that defines each individual’s
“financial identity”1 and the number that determines where people live and work and how much
they’ll pay for access to things like insurance.2

The credit scoring model we know today was born in 1989, although legal standards have governed
credit scoring practices since the passage of the Fair Credit Reporting Act in 1970.3 Despite the
nearly 30 year tenure of the modern credit score, it seems the market is still searching for an ideal
solution to properly identifying risk in lending.

Since it was first introduced, the modern credit score has been far from perfect. People who start out
with low credit scores or minimal credit history often see “larger down payments and higher interest
rates on purchases – terms that place an undue strain on household budgets and that often result in
high rates of bankruptcy and default, which in turn lower credit scores even more.”4 Additionally, the
credit score we know today can be slow to reflect changes in financial behavior, making it difficult for
consumers to first build credit and/or turn their credit around.

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The Limitations of the FICO Score
While the introduction of the FICO score helped standardize credit scoring
and simplify decision making for lenders, it has its limitations. Additionally,
as the American population shifts, its ability to simplify decision making for
lenders has diminished.
One of the biggest limitations to the FICO credit score today is the potential
to discriminate against many different groups of Americans. Specifically,
those with lower incomes often receive higher interest loans, regardless
of their demonstrated ability to make on-time payments. The Consumer
Financial Protection Bureau finds that this practice often discriminates against
minorities, immigrants and younger adults, and that a short credit history can
negatively impact many of the same groups.5
Perhaps most importantly, the unbanked and underbanked population is
increasing, which leaves millions of Americans credit invisible or unscorable.
A recent survey from the FDIC finds that among the 32.6 million unbanked
and underbanked US households, many choose to retain this status due to
privacy concerns, a lack of trust in banks and high or unpredictable bank
account fees.6 These reasons resonated particularly with younger adults in
45 million
Americans are credit invisible or unscorable
the Millennial generation who came of age during the Great Recession7,
and often see “checking” as antiquated and are far more comfortable with
online-only options.8
As the Consumer Financial Protection Bureau sums it up: “The use of
traditional data and modeling techniques has left some important gaps in
access to mainstream credit for certain consumer groups and segments.
The Bureau estimates that 26 million Americans are credit invisible,
while another 19 million are unscorable. Most of these nearly 45 million
Americans are underserved by the mainstream credit system, and they are
disproportionately Black and Hispanic, low income or young adults. Some
populations, like those recently widowed or divorced or recent immigrants,
have difficulty accessing the mainstream credit system because they have
not established a long enough credit history on their own or in this country.
Some underserved consumers instead resort to high-cost products that may
not help them build credit history.”9
It is not only consumers who fall into this category of unbanked and
underbanked. According to Global Findex, 160 million small businesses
lack banking access in the U.S. Without a business credit score, they have
little hope of getting off the ground and building a competitive niche in the
marketplace.10
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25
of Americans are
%
Who Are the Underbanked?
Currently, the Federal Deposit Insurance Corporation (FDIC) reports that 25.2
percent, or 32.6 million, of U.S. households are unbanked or underbanked,
and a growing number of individuals who fall into this group do so by choice.

unbanked or As a result, more and more Americans are now credit invisible or unscorable,
meaning they don’t have a credit score.11

underbanked The problem grows even more pressing when we look at it from an
international perspective. There are more than four billion people globally who
have no financial history and must conduct all of their transactions with cash.
As a result, they have no way to access the resources they need to start a
business or build a life for their families.12

Against this backdrop, it’s clear that the time has come for a new credit
scoring model that improves access to credit for the millions of unbanked and
underbanked Americans.
Unbanked Who are the underbanked? They’re more than just numbers; they might be a
Households where no one has a checking or student who just graduated from college, an immigrant with a positive credit
savings account. history in her home country but no visibility in the U.S., or a newly divorced
single parent with no independent credit history.

Underbanked
Households that have an account at an insured
institution, but also go outside of the banking
system to alternative financial providers for
services and products like money orders, payday
loans, auto title loans, and more.
Often, it’s not that these unbanked and underbanked populations have never
tried to build their credit files. They may have lacked access to traditional
banking services. They may have had a mortgage for 30 years, but never
opened other credit accounts. Now, not only are they restricted from access
to credit, but financial services companies are also missing out on valuable
business opportunities.

3
 Bringing unbanked adults
and businesses into the
formal banking sector could
The Market Impact of generate about

$380
a New Approach
If the industry can solve this lack of visibility, the worldwide impact will be

billion
monumental. According to the World Bank, taking advantage of existing
digital technology could expand formal financial services to up to 100 million
more adults globally.13 These new transactions translate to approximately
$380 billion in new revenues for banks and lenders alone.14 Thus, the power of
financial inclusion can extend its reach to benefit both consumers and their
financial services providers.

In new revenues.14

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Bridging the Gap:
Models for Alternative
Credit Scoring
As the limitations of the traditional FICO score become increasingly glaring,
more and more institutions have come out in favor of alternative credit
scoring. While there is currently no standard model for alternative credit
scoring, proponents of this new approach hope to expand the types of data
that go into credit scoring in order to improve access to credit for the millions
of unbanked and underbanked Americans and others who are underserved
by the traditional model.

5
The Alternative Credit Scoring
credit scoring models to understand these points of interest include:
Landscape Today
Even though credit scoring has traditionally centered around the FICO
score, other scoring models have been developed. Still, all of these mod-
els use the same five data points as the FICO model.
In the world of alternative credit scoring, the same can’t be said. The
Consumer Financial Protection Bureau reports that it is aware of “a
broad range of alternative data and modeling techniques that firms are
either using or contemplating.”15 These models range from platforms that
have been developed by data aggregators and licensed to vendors to
those that lenders have developed for their own proprietary use.
According to the Consumer Financial Protection Bureau, these models
typically look at some combination of the following activities to deter-
mine creditworthiness:16
• Traditional loan repayment behavior
• Non-loan payment data (e.g. utility or rent payments)
• Cash flow information
• Home, job, and lifestyle stability information
• Education and employment data
• Online behaviors
• Personal and professional connections
Across the board, some of the most common variables used in alternative
Checking and saving account transactions: Checking and
saving account transactions can provide concrete information on
cash flow by looking at deposits (income), spending habits (bill
payments) and typical account balances.
 tility bill, rent, cable and/or mobile phone payments: An
U
individual’s history of utility bill, rent, cable and/or mobile phone
payments can help establish non-loan payment patterns (e.g. early,
on-time, late or missed payments) and intent to make payments.
In fact, FICO has a new program called FICO Score XD that uses
telecom and utility bills from Equifax and property and public re-
cords from LexisNexis to expand access to credit to those who are
traditionally credit invisible or unscorable.17
 obile phone location: Some experts have also proposed using
M
mobile phone data to capture an individual’s location as a way to
verify their home and work addresses, which can help determine
stability.18
 ocial media activity: Experts have also proposed using so-
S
cial media data to help gather information around home, job and
lifestyle stability, education and occupational attainment, online
behaviors and personal and professional connections. For exam-
ple, lenders can review employment history on LinkedIn and look
across other social media channels to assess connections and
understand lifestyle choices and spending habits.19
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Alternative credit scoring could help
approximately 7.6 million consumers
that are currently unscorable to earn a
credit score of 620 or higher.21
The Goal of Alternative Credit
Scoring Models
The alternative credit scoring models in place currently are
still very young, but they are already making headway toward
their goal of increasing access to credit for consumers who are
traditionally credit invisible or unscorable, and improving credit
scores for those who are unfairly discriminated against by the
traditional FICO model.
For example, TransUnion has introduced an alternative credit
scoring model known as CreditVision Link that relies on proper-
ty, tax and deed records as well as checking, debit or payday
lending information, among other points. Spokesman David
Blumberg shares that the firm has collected over three billion
non-traditional data points on over 260 million American adults
and that “these alternative data sources have proven to accu-
rately score more than 90 percent of applicants who otherwise
would be returned as no-hit or thin-file by traditional models.”20
Similarly, VantageScore Solutions estimates that alternative
credit scoring could help approximately 7.6 million consumers
that are currently unscorable to earn a credit score of 620 or
higher.21
By improving access to credit and helping consumers earn
higher credit scores, alternative credit scoring can help mil-
lions of Americans do things like purchase a house, get better
insurance rates and even get better jobs, as many employers
now look at credit history as a way to gauge responsibility. In
turn, alternative credit scoring can help improve economic and
social mobility.
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In response to the Consumer Financial Protection Bureau’s Request for Information on
alternative credit scoring, a California-based property manager writes:

“We don’t accept applicants with no credit history as we have no way

to gauge their creditworthiness. I’m sure we have turned down many
good qualified applicants [because of that], but we will never know.
Adding payment history for rent, utilities and cell phones would be a
valuable addition for individuals who don’t buy on credit.”22

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Alternative credit scoring
could bring formal financial
100
services to up to
million
more adults globally.13
“Contrary to common perception,
tests indicate that many underserved
consumers represent prime or near-
prime credit risk to lenders.”25
The Consumer Financial Protection Bureau has also identified several ways in
which alternative credit scoring can improve on the limitations of the tradi-
tional credit scoring model, including:23
Greater credit access: The unbanked and underbanked who are currently
credit invisible or unscorable could finally become scorable using data like
utility bill and rent payment history, which would increase their access to
credit. When alternative credit data was added to consumer credit files, Expe-
rian saw a 60 percent lift in approvals for near-prime consumers.24
 nhanced creditworthiness predictions: In addition to discriminating
E
against the unbanked and underbanked, the traditional credit scoring model
also often inaccurately portrays creditworthiness (for example by looking at
the length of time accounts have been open). As a result, many people who
could very well be good candidates to receive – and repay – credit have arti-
ficially low scores that hurt their ability to obtain credit or obtain it at a lower
interest rate. Alternative data points can help generate more accurate credit
scores.
 ore timely information: Some data used in traditional credit scoring often
M
lags, as it can take months from the time an account is opened until it’s
included in the consumer’s credit report. Alternative data points typically
don’t include this time lag (especially since many of these data points can be
collected via automation), which could contribute to greater accuracy, make
it easier for consumers to first build credit and help identify those who have
overcome financial challenges.
 ower costs: Alternative data and modeling techniques can lower costs for
L
lenders (e.g. by allowing for less expensive data sources and collection meth-
ods thanks to data automation), which lenders can then pass on to consumers
by lowering prices and/or making smaller loans.
 etter service and convenience: In addition to lowering costs, alternative
B
data and modeling techniques can also improve service and convenience by
making the approval process faster and decreasing reliance on discretionary
decisions that might lead to discrimination.
In general, recent research from the Center for Financial Services Innovation
finds that, “contrary to common perception, tests indicate that many under-
served consumers represent prime or near-prime credit risk to lenders. Most
importantly, unlike traditional credit scores, alternative credit scores can be
generated for most adults in the United States, which means that widespread
use of alternative data could dramatically broaden the reach of mainstream
financial services companies.”25
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Making Change a Reality:
How to Develop Alternative
Credit Scoring Models
Change can take place slowly in the lending space. As Steve Ely, CEO of eCredable said: “The
credit reporting industry hasn’t fundamentally changed in more than a century.”26 Still, the
tables are beginning to turn in credit decisioning. For example, long-time players like FICO
and TransUnion have started to experiment with alternative credit scoring models, while new
players like eCredable are penetrating the market with new sources of credit data.

For financial technology organizations, a lot of value lies in investing in data to create propri-
etary scoring models. First, proprietary models provide complete control over both the data
and the calculations, which can help ensure timeliness and accuracy, both of which can make
a big difference to lenders. Second, proprietary models that include timely and accurate data
and prove reliable when it comes to predicting risk provide a competitive advantage when it
comes to which scoring models lenders choose to use in their decision making process.

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 70 %
Tapping the Right Alternative Data
Alternative credit scoring is more viable now than ever before, as alternative data
becomes widely available. Experian’s 2018 report found that 70 percent of con-
sumers are willing to provide additional financial information to a lender.27

However, it can’t be stated enough that the value of alternative credit scoring is
only as good as its ability to accurately predict risk for lenders. If alternative mod-
els can’t accurately predict risk, then they prove dangerous to lenders and, down
the line, the U.S. economy. As a result, any firms developing proprietary scoring
models need to put careful thought into the type of data points used and where of consumers are
willing to provide
that data comes from.

It is also important to note that alternative data is not a standalone solution. As Liz

additional financial
Pagel, VP of Consumer Lending Market Strategy at TransUnion, said: “Alternative
credit data alone does not provide a comprehensive view of subprime consumers
or tell their whole story, but when combined with traditional, particularly trended

information to a
data, it can yield powerful results.”28

Beyond accuracy in predicting risk, the Center for Financial Services Innovation

lender.27
points out that the ease of access to alternative data is another important con-
sideration for anyone developing new credit scoring models. This is because the
easier it is to integrate this data into marketing and decision making efforts, the
easier it will be for lenders (and therefore consumers) to reap the benefits that
alternative scoring models can provide.29

Fortunately, utility bill payment is data that satisfies both predictive accuracy (the
Center for Financial Services Innovation finds that utility bill payments are among
the most reliable data points used in alternative credit scoring models30) and ease
of access and integration.

Specifically, a solution like Urjanet can provide accurate and timely access to util-
ity bill data by automating the data collection process, standardizing data across
multiple providers and seamlessly delivering the data in any number of formats.
This type of automation makes it easy to integrate reliable and timely utility data
into alternative credit scoring models.
Utility bill data opens up a promising opportunity for expanding financial inclusion.
An Experian study on the impact of energy-utility reporting on credit decisioning
found 97 percent of the population to see an increase or neutral impact to their
credit score.31
Urjanet Utility Data enables access to consumer
and business payment history that is:
• retrieved and verified directly from the source
• consumer-permissioned to meet privacy and
regulatory requirements
• available on-demand for timely credit decisioning

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Bringing Credit Scoring
Into the 21st Century
When the FICO credit score first hit the market in the 1980s, it brought standard-
ization to the credit scoring process and made decision making easier for lenders.
But a lot has changed since the 1980s. And many of those changes have made
the traditional FICO credit score outdated. Today, nearly 50 million consumers
and 160 million small businesses are credit invisible or unscorable, which makes
it nearly impossible for them to obtain the type of loans needed to buy a house or
a car and creating other barriers to economic and social mobility along the way.

Fortunately, the remedy for this situation is well within reach, as we now have the
technology to access mountains of data that can be used to create alternative
credit scoring models that accurately predict risk for lending to unbanked and
underbanked consumers (as well as others who are underserved by the tradition-
al approach). Most often, these alternative models use data points like checking
account information and rent and utility bill payment history to create a new kind
of credit profile for consumers.

Ultimately, with the use of data automation technology that enables access to
consumer-permissioned, on-demand alternative credit data, alternative credit
scoring is poised to provide millions of consumers with access to credit without
increasing risk for lenders, improve costs and efficiency for lenders and infuse the
market with more consumer spending power as a result.

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Get Started Today
Ready to learn how you can use Urjanet to power your
credit risk decisioning with timely and accurate utility
bill data?

Contact us today to learn how Urjanet can help you:

• Shed light on thin- and no-file applicants Contact Us

• Uncover new revenue within decline traffic

• Advance risk models with innovative data sources

…and so much more

13
1 Lauer, Josh. “From Rumor to Written Record: Credit Reporting and the Invention of Financial 21 Seidman, Ellen. “Innovations in Credit Scoring Could Help More Families Become First-Time
Identity in Nineteenth-Century America.” Project Muse. April 2008. Home-Buyers.” Urban Institute. March 28, 2017.

2 Trainor, Sean. “The Long, Twisted History of Your Credit Score.” TIME. July 22, 2015.
3 Trainor, Sean. “The Long, Twisted History of Your Credit Score.” TIME. July 22, 2015.
4 Trainor, Sean. “The Long, Twisted History of Your Credit Score.” TIME. July 22, 2015.
22 Adams, Sandy. Comment on “Request for Information Regarding Use of Alternative Data and
Modeling Techniques in the Credit Process.” April 17, 2017.
23 “Request for Information Regarding Use of Alternative Data and Modeling Techniques in the
Credit Process.” Federal Register. February 21, 2017.

5“Request for Information Regarding Use of Alternative Data and Modeling Techniques in the
Credit Process.” Federal Register. February 21, 2017.
6“2017 FDIC National Survey of Unbanked and Underbanked Households.” Federal Deposit
Insurance Corporation. 2017.
7C richton, Danny. “Millennials Are Destroying Banks, and It’s the Banks’ Fault.” TechCrunch.
May 30, 2015.
8 “Packaged Facts: Banking on Unbanked Millennials.” PR Newswire. April 7, 2016.
9 “Request for Information Regarding Use of Alternative Data and Modeling Techniques in the
Credit Process.” Federal Register. February 21, 2017.
10 “Global Findex Database.” The World Bank. 2017.
24 “The State of Alternative Credit Data.” Experian. 2018.
25 Schneider, Rachel and Arjan Schutte. “The Predictive Value of Alternative Credit Scores.”
Center for Financial Services Innovation.
26 “eCredable and Urjanet Partner to Expand Financial Inclusion for Consumers and Small
Businesses.” Urjanet. October 23, 2018.
27 “The State of Alternative Credit Data.” Experian. 2018.
28 Monfort, Francis. “TransUnion Launches Risk-Scoring Model for Alternative Lenders.”
Mortgage Professional America. August 26, 2018.
29 Schneider, Rachel and Arjan Schutte. “The Predictive Value of Alternative Credit Scores.”
Center for Financial Services Innovation.

11 “ 2017 FDIC National Survey of Unbanked and Underbanked Households.” Federal Deposit 30 Schneider, Rachel and Arjan Schutte. “The Predictive Value of Alternative Credit Scores.”
Insurance Corporation. 2017. Center for Financial Services Innovation.

12 “Global Findex Database.” The World Bank. 2017. 31 “ The Impact of Positive Data Reporting.” Experian. June 25, 2016.

13 “Financial Inclusion on the Rise, But Gaps Remain, Global Findex Database Shows.” The
World Bank. April 2018.

14 “ Within Reach: How Banks in Emerging Economies can Grow Profitably by Being More
Inclusive.” Accenture. 2015.

15 “Request for Information Regarding Use of Alternative Data and Modeling Techniques in the
Credit Process.” Federal Register. February 21, 2017.

16 “ Request for Information Regarding Use of Alternative Data and Modeling Techniques in the
Credit Process.” Federal Register. February 21, 2017.

17 S elyukh, Alina. “Could Your Social Media Footprint Step on Your Credit History?” NPR.
November 4, 2015.

18 Raj, Rajiv. “Your Digital Behaviour Impacts Your Loans and Spends.” Livemint. April 7, 2017.

19 Selyukh, Alina. “Could Your Social Media Footprint Step on Your Credit History?” NPR.
November 4, 2015.

20 Selyukh, Alina. “Could Your Social Media Footprint Step on Your Credit History?” NPR. ©2018 Urjanet, Inc.
November 4, 2015. All rights reserved.
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