Fun fact about credit scores – did you know whether a score is prime or subprime, you are looking at historical information? Not recent history either, so the data is likely an inaccurate picture of the current state of the borrower’s financial health. An enormous amount can change in a single year, let alone seven years, so why would you make lending decisions based on who a borrower was a lifetime ago, and not their ability to pay today?
If a potential borrower is in front of you, requesting a loan, it generally means something has occurred in their financial lives fairly recently. In these circumstances, does it make sense to rely solely on a credit report? They are great tools, and many of our clients still employ them, however you must also incorporate a bank statement as a piece of the asset verification process.
DecisionLogic’s IAV (Instant Account Verification)
product is a digital, read-only bank statement that comes directly from the borrower’s financial institution. Utilizing this tool does several things. First, it virtually eliminates bank statement fraud as the borrower does not have the ability to manipulate the results. Second, it gives you real time payroll deposits instantly, plus a more complete view of their spending history. Do they have a side hustle like Uber or Etsy? Do they have other sources of income from government or investment benefits? Or maybe their income is substantial, but you see they recently took out a bunch of smaller loans that not have hit their credit score yet?
These are only a few of the factors that a credit score can’t remedy. Only the bank data can give you that level of clarity. And let’s face it, you want to be as clear as possible in who you choose to lend to.
One of our major consumer lender clients ran an A/B test on approximately 15,000 loans. They processed half of the loans using only a credit report and the other half using a credit report along with a DecisionLogic digit bank statement. They saw a 40% decrease in their first-time default rates on the applications where a bank statement was used in the evaluation process. 40%!!! That’s absolutely a game changer! Interestingly enough, using IAV also decreased their call-center reps processing time, so they were able to process more applications faster.
You can probably guess the main reason for this huge difference is relying solely on a credit score can be very misleading, but you can’t fool a lender who utilizes a DecisionLogic bank statement. With critical real-time data, and a full view of the borrower’s spending habits at your fingertips, you have the insights to determine credit worthiness in record time.
It really comes down to who are YOU lending to? More importantly, are you handing credit to the person applying today or to who that person was 7 years ago?