When you assess a consumer’s credit risk, are you seeing the full picture? Traditional credit scores give you a narrow view of a consumer’s position at a point in time, which limits your decisioning ability. TransUnion’s CreditVisionTM suite of solutions broadens that view, providing insights into a consumer’s credit performance over time. Behind these solutions are two powerful types of data: trended data and alternative data. We take closer look at what these are and how they are changing the South African lending landscape.
Predicting risk better with trended data
Before trended data was incorporated into credit risk reports, these reports reflected a static view of a consumer’s behaviour, as they looked only at data at specific points in time. As our ability to process greater volumes of data improved, we were able to expand our analysis to look at a consumer’s monthly balance, to provide a much more holistic and accurate view of credit risk.
We have also developed new ways to measure trends within consumer behaviour. For example, by examining a consumer's trend in balance, we have found that consumers who are consistently growing their balances are riskier than those who are paying down their debts.
Consumers who would have had the same score on a report that uses traditional data only can show significantly different levels of risk when trended data is taken into account. Lenders that have this view of a consumer’s credit behaviour are therefore in a much stronger position to make informed decisions than those relying solely on information based on a static view of a consumer’s credit history.
Expanding the view of risk with alternative data
Alongside these developments, we have also incorporated alternative data into our CreditVisionTM solutions. Using alternative data gives lenders a holistic view, whether they’re assessing an application or looking to make an offer on an existing account.
Previously, most credit scores were based on payment profile data that was submitted to credit bureaus via the South African Credit & Risk Reporting Association (SACRRA) Our CreditVisionTM solutions incorporate so much more than this, using alternative data sources such as commercial data and deeds information to gain a more comprehensive understanding of a consumer’s risk.
For example, we can now see whether a consumer has been linked to successful (or not-so-successful) business enterprises, and what their property assets and financial obligations are. This means we are able to provide a far more comprehensive view of consumers than previously possible.
Greater predictive power
Given the significant benefits of trended and alternative data, it’s understandable that the use of this kind of information in credit scoring is growing internationally. Locally, TransUnion has the largest, most varied data sets in South Africa, and the analytics capability to make sense of it for lenders.
By incorporating these new variables into our risk models, we have seen significant improvements in predictive power. When we compared the outcomes of generic models run on ‘old’ data to models that use trended and alternative data, we saw an overall increase in risk predictability of 56%.
Wider consumer universe
Another important benefit is the ability to assess consumers who may previously have ‘fallen through the net’, either because they had a limited credit history (or none at all), or because they simply didn’t have much credit activity at the time they applied, making it difficult to assess their credit risk.
We identified that, at any point in time, there were three million South African consumers who could not be scored using traditional credit data but were well-performing consumers when they did become credit active.
CreditVisionTM can enhance our ability to assess these so-called thin-file consumers. Our solutions also incorporate useful demographic information that helps to assess those whose credit files have little or no data.
And it’s not just lenders that benefit here: because more consumers can be assessed, more accurately, more people have a fair chance of gaining access to credit on terms that align more squarely with their level of risk.
The power of CreditVision with payment data
We have developed ways to measure a consumer's payment behaviour based on actual payment data sent only to TransUnion. By being able to see the payments consumers make, we can gain even greater insight into how people actually transact on their accounts, and how this affects their risk profile.
For example, a transactor (someone who pays the full amount on their credit card every month) will have a lower risk than a revolver (someone who pays just the minimum). Using this information, we are constantly refining our models so we can provide a more accurate view of consumer credit risk.