Consumer contributed data: a welcome boost for credit scores

We all love a subscription. Whether that’s bingeing on the latest box set available on Netflix or Prime, or enjoying a craft ale from your monthly beer box – the popularity of these services have grown significantly over the last decade. In fact, recent research revealed that the UK spends over £550 a year on new subscription services and signs up to an average of seven services per household.

Although interesting, these numbers aren’t surprising to see. There’s no doubt that we are spending more and more of our time online. The Covid-19 pandemic has only served to accelerate the digital disruption we’ve seen across all sectors in recent years.  

What’s less obvious is the impact that this behavioural change is having on the provision of financial services. There is a big opportunity to use the financial information created through the payment of subscription and other digital services as a new data source to help lenders understand affordability more robustly and intuitively — one which is more appropriate for the digital age.

New data sources: how can they help?

In credit terms, data validates identity and demonstrates creditworthiness. ‘Traditional’ credit data is provided through cards, loans, mortgages and current accounts. ‘Alternative’ data, meanwhile, refers to information that has not historically been part of a credit report.

By building out financial track records with these new sources of information, lenders will be able to understand credit risk in a way that is fit for purpose in a rapidly changing marketplace. This has the potential to help people access better deals on credit, even when there’s a lack of traditional information to strengthen their credit history.

For example, someone without a loan repayment history on their credit report might be making regular, accountable payments for an online subscription service. These payment histories could demonstrate to lenders that an applicant can afford to repay a loan they’ve applied for, even in the absence of enough traditional financial information to inform the same decision.

Consumer contributed data, such as the transaction information made available through Open Banking, can also play a key role for lenders in helping them to understand borrowers and make more informed decisions through trended data.

Equipped with the knowledge that a longer view of trended data provides, a lender can identify credit behaviour patterns over time and then make decisions accordingly. It’s an insight which could be useful when onboarding a customer, but equally could help lenders to anticipate people experiencing problems with debt before it becomes unmanageable.

Next-generation credit scoring

The next stage of this journey is helping more people to add their consumer contributed data directly to their credit files and improve their credit scores. This will enable them to get access to more affordable products and services, by building out financial track records with relevant financial data, helping lenders to understand credit risk in a way that is fit for purpose in a rapidly changing marketplace.

In the UK, we have introduced Experian Boost, a new free service giving people the ability to boost their Experian Credit Score instantly. It will allow people to take control of their credit score by voluntarily adding further information about their everyday financial activity via Open Banking - an industry first.

It will consist of general information, such as the level of account incomings and outgoings, as well as a range of new transactions and payments, including savings and investments payments, subscriptions and utility bills.  

This can become an important tool to improve the chances of continued consumer access to affordable credit, especially with the impact of Covid-19 on the credit economy.

Finding new ways to improve the accuracy of scoring is incredibly important as credit scores ensure people have better access to the right financial products based on their circumstances. By giving people more ways to improve their credit score, they are empowered to present the best possible version of themselves when applying for credit.

Improving accuracy also safeguards lender business models. Providing a broader, more in-depth insight into financial and credit histories, it also ensures lenders can provide affordable credit to more people.

The world is changing at a faster pace than ever before, and people’s finances are moving at the same rate. By using new data sources, made possible through the proliferation of digital services, it’s possible to lend fairer and more accurately, while including more people in the mainstream financial system.