Our analysis suggests that people who self-report positive cashflow perform considerably better than people who self-report less positive cashflow, even when holding credit scores constant.
4 We focus on people with credit scores under 720 (below the superprime segment) because people with superprime credit scores are very unlikely to become seriously delinquent, so there is a smaller margin for cashflow data to be informative. Though our results suggest that using cashflow data may improve underwriting, there are two major caveats: our effective sample size is small (only hundreds of consumers), and the cashflow measures are self-reported proxies. 3 The three proxies we use are high accumulated savings, regularly saving and no overdrafts, and paying bills on time. In this blog post, we use the CFPB’s Making Ends Meet survey and the linked Consumer Credit Panel (CCP) to show that three self-reported proxies for cashflow appear predictive of serious delinquency, even when analyzing people with similar traditional credit scores. More research is needed to understand the extent to which cashflow data might enable better predictions about a person’s ability to repay their loans. 1Ĭashflow data (broadly defined as various inflows, outflows, and accumulated amounts in checking and savings accounts) may provide lenders with more information about how applicants manage current obligations than they could learn from applicants’ credit repayment histories alone. Credit reporting data include individuals’ performance on a variety of credit products, such as mortgages, credit cards, auto loans, and student loans, as well as certain public records and some other forms of lending.
Lenders frequently use third party credit scores, and many also develop their own proprietary models. Most loan underwriting in the United States makes use of credit reporting data to evaluate repayment risk.
0 kommentar(er)
