Borrowing without a credit record

CreditVision, a new product from TransUnion, should make it easier to get financing without a credit record.

Transunion CreditVisionOne of the reader queries we receive regularly is from people who have chosen not to take out short-term credit. They have sensibly avoided credit cards and store cards, but when they want to buy a car or a home, they get told that they don’t have a credit record.

This is a specific bugbear of mine because a payment history is as good as a credit history. If you have debit orders going to pay your insurance or into an investment account and you have shown that over time you manage your monthly finances, meet your debit order obligations and have saved enough to put down a deposit on a car or house – that should be sufficient information for a bank to see that you are a good risk. In banking terms this is called a ‘credit-lite’ or ‘credit-thin’ score and some banks are better than others at assessing on credit-lite scores.

The good news is that credit bureau TransUnion has launched CreditVision which collects a wider range of data on a consumer to assess their propensity to repay debt. “With the power of CreditVision’s alternative and trended data, financial institutions can see these consumers in a different, more positive light,” says Lee Naik, CEO of TransUnion Africa who explains that for consumers who do not have a credit record, the algorithms within CreditVision provide a view of direction (positive or negative) of consumer behaviour, assisting credit providers with more information not based on a traditional “point in time” view but on a trended data view.

More holistic picture

“For customers who do not have a lot of bureau history, CreditVision includes alternative data which could provide a more holistic picture of consumers with “thin” credit information at the Bureau.”

Traditional credit-scoring models only provide a limited view of a consumer at a specific point in time. TransUnion is the first credit bureau in South Africa to utilise alternate and trended data to gain a more holistic view of a consumer and identify trends in their credit behaviour.

With improved data, individuals with lower risk profiles due to their behaviour, should benefit from lower interest rates. “When lenders use this information and can access it broadly across the consumer wallet, it allows them to better tailor their products to consumer performance, which builds better loan relationships and helps everyone in the long run,” says Naik.

This is a proven TransUnion model which has already seen success in the United States, Canada, India and Colombia. “We have seen as much as a 56% increase in risk predictability when using our CreditVision model locally. In addition, we have seen as much as a 20% improvement in approval rates and a 29% decrease in bad debt amounts,” added Naik.

Naik says a survey of 1 000 South Africans found that consumers would support this approach, with around 63% of respondents indicating they would approve of financial institutions understanding more about them with the knowledge that it could provide a more comprehensive view of their credit health. This could lead to improved interest rates and more access to credit for them.

“We all need to play a part in tackling the lack of financial inclusion in South Africa, and we feel that TransUnion’s CreditVision can play a key role by allowing people to access the credit they need at a cost that reflects their true risk profile and ability to repay,” said Naik.

This article first appeared in City Press.

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