Big data and artificial intelligence are shaking up the consumer lending industry. A host of new enterprises now deliver consumer loans and consumer credit analytics using expanded data sets, including utility bill payment histories. Here are three ways including a utility bill payment history in the consumer data file delivers value to the credit market.
1. Expand the pool of qualified borrowers. 25% of Americans -- 53 million adults -- don’t have credit scores. The most common reason is a snag on the data, such as stale data or too little data. Adding 24 months of electric, gas or water bill payment history immediately fixes the problem. And, adding data improves scores: In two separate studies, Experian found a 15% increase in consumers with prime scores (above 660) after the addition of utility payment history to the credit file. There was also a 50% increase in nonprime consumers (601 - 660). Adding utility payment data uncovers the qualified borrowers.
2. Better predictions. VantageScore 3.0, a rival to the familiar FICO score, already incorporates utility bill data. In 99% of tests, VantageScore 3.0 is more predictive of actual defaults than prior industry models. Also, in the two studies mentioned above, Experian found that adding utility bill payment histories enabled more nuanced predictions, leading to substantial interest rate reductions on credit card offers. Better data increases clarity for lenders across all credit scores.
By the way, after adding utility bill payment history, 97% of consumers had the same or better credit score. Consumers gain too.
3. Fewer defaults. Take a look at the default rates from four innovative lenders using expanded data sets and new lending criteria:
- Zest Financial: 54% fewer defaults than standard lending
- Revolution Credit: 39% fewer defaults than standard lending
- SoFi: Less than 1% defaults
- Earnest: Less than 1% defaults
With proven results like these, it is not surprising to see the credit score industry hungry for new data sources. Here is what the CEO of VantageScore has to say:
“Rent, cellphone, and utility payments are good examples of alternative payment data under our definition. What’s more, they are highly predictive, and credit scores generated using alternative data are highly predictive.”
But there is a data gap. Only 2.5% of consumer credit files currently include utility bill payment histories. WattzOn, with its national software platform for consumer-permissioned utility data, can close this gap. Imagine updating a credit data file within minutes: 24 months of utility bill payment history data plus 24 bill pdfs for data validation and consumer dispute resolution.
And utility payment histories are also a source of other insights and data triangulation:
- Stable address (less risky borrower)
- Automatic bill pay (less risky borrower)
- Budget/smoothed billing (less risky borrower)
- Low income utility rate discount (additional validation of household income)
Ready to learn more? We love this stuff! We’re delighted to talk about how utility data can play a role in improving credit.