Financial Inclusion’s Role in the Economic Recovery

Market Pulse

In this K-shaped economic recovery, many consumers will prosper, while others will continue to struggle. In this episode, we discuss how VantageScore could score about 37 million Americans who are conventionally unscoreable -- and what that could mean for the economy. Join Katherine Doe of Equifax as she interviews David Fieldhouse, director of consumer credit analytics at Moody’s Analytics, and Emre Sahingur, senior vice president of predictive analytics research and product management at Vantage Score.

This portion of the transcript is edited for brevity. Listen to the full podcast for more great insights.

Katherine:

It feels like we're starting to see the path forward to the normal-normal, and not just the pent up demand normal. So that's good to hear. We're talking a lot about that top “leg” of the K and that path forward, but there's that opposite path as well -- a whole different population of consumers that are not in that position. So I'd love to hear from you a little bit more of what you're seeing on the credit side for that divergent path in the K.

David:

The population that I like to study when I'm thinking about the other half of the K, the individuals who maybe are not as well positioned right now, I usually look at the renter population. That's usually the group that I focus on. We estimate there are about 5.6 million delinquent renters in the United States. So this is about 13% of all renters. To put that in context, our best estimate is that about 6% of renters are typically delinquent. In terms of severity amongst the delinquent population, we're expecting that they're about three months behind in payments when you put together rent and utility, and those typical payments that need to be made. Things have actually improved.

So, we were talking earlier this year about a potential rental eviction crisis. Things are on the right path to staying away from that true crisis. What we need to do is have rental assistance from the government actually get distributed. There's been a lot of administrative hurdles as money passes from state to local governments to finally make it to the renters. But there are definitely 5 million renters out there right now that are probably not feeling as optimistic about the economic situations. And we need to be cognizant of this group.

Katherine:

And this is where we can dig in a little bit more to your research, Emre. I would love to hear from your perspective an overview of the unscoreable and invisible populations that you've been studying and what VantageScore was seeking to better understand with that initiative.

Emre:

You're absolutely right that there's actually a significant focus on the topic of credit invisibles right now. Lack of a credit score certainly hinders that consumer's ability to access mainstream credit products. And that contributes to financial inequities and the growing wealth gap for historically disadvantaged consumers.

As you mentioned at the beginning of the podcast, a foundational objective for VantageScore has always been centered around financial inclusion. Innovations have been aimed at really trying to increase the population of scoreable consumers and to provide a fair and accurate representation of credit risks so that they can have a fair shot at gaining access to mainstream credit products.

Now coming to our research, CFPB performed an analysis back in 2015, which stated that there were roughly about 45 million consumers who were credit invisible. But we know that not all of these consumers are credit invisible, really. They're invisible only to some of the legacy systems and models that have not been really updated for quite some time.

In our research, we aim to provide an estimate of the total population of consumers 18 years or older, who are scoreable by VantageScore. And we looked at the 2019 census numbers, and we note that there were about 48 million consumers who are not receiving a score through conventional models due to their stringent scoreability criteria. And we can estimate that VantageScore can get to about 37 million of these consumers, meaning we can actually reach about 96% of adults in the United States and provide a reliable and accurate score for them.

In our research we performed recently, our aim was to really better understand these newly scoreable consumers. Study what information they have in their credit profiles. Understand some of the demographics such as their age distributions, their income distributions. Understanding that race and geography representation.

And we also looked at the association between scoreability and some of the key socioeconomic indicators, such as income levels, education, home ownership, and access to financial services in the communities consumers live in. We also looked at how race interacts with all of these different factors. A key goal for that research was to really identify consumer segments that we felt would be most benefiting from a more inclusive credit scoring model.

For more on this interview, listen to our full podcast. To access the latest consumer credit and small business insights, contact your Equifax account executive today, or visit us online at equifax.com/business. You might also enjoy checking out Economy.com by Moody’s Analytics for the latest economic updates.

******We want to hear from you! What did you think of this episode? What would you like to hear our experts share in the future? Email us: [e-mail].

RESOURCES mentioned in this podcast:

• Download the VantageScore report, “​​Combating Inequality with Inclusivity: Who Exactly is Credit Invisible and How are Racial Disparities Impacting Minority Homeownership Opportunities?” https://vss.credit/inclusivity
• Do you have the economic and consumer credit performance data you need? With CreditForecast.com -- a joint product created by Equifax and Moody’s Analytics -- you can access data, forecasts, scenarios, analyses and more from analysts you trust. https://www.creditforecast.com
• Register for upcoming Market Pulse webinars from Equifax, plus access previous webinars and presentations.
• Download our latest Credit Trends reports.