Credit Scoring, Lending in “Dire Need” of Innovation, Financial Services Survey Reveals

Pinwheel, the payroll data connectivity platform, released the results of a new survey “on consumer attitudes towards credit scoring and data sharing.”

Findings demonstrate that:

  • Financial institutions are missing out on servicing a portion of otherwise reliable borrowers due to current credit scoring methods miscategorizing them as uncreditworthy.
  • Consumers lack faith in the transparency and fairness of credit scoring.
  • Consumers losing out on lending opportunities by not being evaluated based on their income
  • Certain demographics of consumers are disproportionately impacted by outdated lending/credit evaluation practices
  • Nearly half of respondents were willing to share access to their financial data if it accurately reflects their financial standing and grants access to better financial products.

These survey results “signal a clear message to financial institutions – credit scoring and lending is in dire need of innovation.”

Consumers “want their true financial status to be accurately represented to lenders, and the current credit scoring is not accomplishing this.” Financial institutions must “adapt and explore the inclusion of alternative data in determining creditworthiness.” Those who fail to do so will “continue to leave money on the table and ultimately lose customers to FI’s that adopt modern, inclusive lending practices.”

According to consumers, credit scores aren’t an accurate measurement of their financial health:

  • 56% agree that credit scoring methods are not transparent
  • 53% agree that current credit ratings are not fair
  • 42% say they don’t feel included in the current credit rating system
  • 42% say they have limited control over their personal financial data

A large majority of working Americans (75%) report “that external factors have impacted their credit score.”

These factors “include insufficient credit history, missing repayments, and applying for multiple loans or credit cards within a short period of time.”

Those with “an income of less than $30k are more likely to have an impact on their credit score due to little credit history/too few credit cards.” Insufficient credit history/having too few cards and loans “has impacted 19% of working Americans’ credit scores.”

As noted in the update from Pinwheel, 76% agree “that credit score should not be the only criteria for getting a loan.” And 77% agree “that the current income should be used as a qualifier for lending,”

In addition to their dissatisfaction with the current credit rating systems, American consumers also expect their income data to be updated in real-time:

  • 71% of working Americans agree that when they apply for a loan, they expect the income used to evaluate their creditworthiness is up-to-date within the last 24 hours
  • 57% agree that credit scores are not updated in real-time/do not always reflect the impact of recent payments

Those with an income of less than $50k (60%) are “less likely to believe their credit score is updated regularly by the agencies than those an income of $100k+ (81%).”

Attitudes to sharing income data:

  • 46% are likely to allow financial institutions more access to their financial data if it accurately reflects their financial standing and grants you access to better financial products
  • 25–40-year-olds are the most likely to allow access to their financial data
  • More than a third (34%) of working Americans would be open to sharing their data if it more accurately reflected their financial picture and grants them an access to better financial products.
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