Are you ‘Unscorable’? Doesn’t Make You Unreliable

Are you ‘Unscorable’? Doesn’t Make You Unreliable.

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Home Buyers might feel that if they have no bad credit, they are automatically a good credit risk. This isn’t always the case. Some potential home buyers may have no credit at all and mortgage lenders frown on that. All may not be lost if you have no credit score. Lenders will sometimes accept other forms of credit such as proof of consistently paid rent, utilities and cell phone bills. Nevertheless, it is advisable that as soon as possible, you begin establishing a credit score.

Consumers deemed “unscoreable” by conventional credit scoring models—and shut out of access to credit, including mortgages, as a result—are likely to be as creditworthy as “scoreables,” a recent study by VantageScore Solutions reveals. In fact, according to the study, the credit behaviors of unscoreables often mirror those of scoreables, indicating a worthy credit profile despite a lack of score. More than 30 million consumers were unscorable as of 2015.

“There is a longstanding perception that if consumers are conventionally unscoreable, it is because they are too high-risk to qualify for credit, or simply don’t need it,” says Sarah Davies, VantageScore Solutions’ senior vice president of Analytics, Product Management and Research. “Our study demonstrates this assumption is false.”

VantageScore researchers arrived at this conclusion after analyzing a random sample of five million anonymized consumers from the Experian database, comparing those whose credit profiles satisfied conventional scoring criteria with those whose did not, but had a credit history of at least one month or aisblic collection record. The researchers then determined the sample’s credit capability and capacity using the VantageScore 3.0 score and additional demographic and financial data.

The combination of the VantageScore 3.0 score and additional data, the researchers found, provided enough evidence to assign creditworthy status to the conventionally unscoreable, on par with the conventionally scoreable—in fact, the average income of the unscorable was found to be 67 percent of that of the scoreable, and the unscorable showed “a reasonable capacity for repaying debt in terms of income and income generation,” the researchers state. This finding should spur lenders to consider alternative credit assessment methods, widening credit availability, especially for mortgages.

“It is a wake-up call for lenders about the need to choose their credit scoring model carefully to ensure they can ‘see’ all creditworthy potential borrowers,” says Davies. “Inhibiting consumers’ access to credit without seeking a holistic understanding of their creditworthiness only propagates sparse credit file conditions and conventionally unscoreable status.”

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Bill Salvatore / Arizona Elite Properties