Achieving Economic Recovery Through Data

America has faced two very different, severe financial crises since the start of the new millennium. At face value, the widespread unemployment and financial loss of today feels like an echo of 2008. However, there is one new factor that could accelerate economic recovery this time. As we think about the road to recovery from the pandemic, the most significant difference between the 2008 financial crisis and where we are today is the accuracy, availability and immediacy of data.

By leveraging today’s accurate data and providing open access to credit, credit unions can help mitigate the impact of the economic crisis, form a precise picture of an individual’s creditworthiness and improve financial access for millions who have been unfairly excluded from the credit ecosystem. In today’s lending environment, credit unions can use data for good to help members gain access to fair and affordable credit.

Echoes and Reverberations

The year 2008 was right at the turning point for “big data.” Unlike the data of today, big data in 2008 had less structure and was not ready for immediate analysis. While there were facts and figures to work with, it took financial institutions significant time, effort and resources to accurately identify financially vulnerable consumers.

However, our access and use of data has become much more sophisticated since then. Now, rather than having large collections of formless data, credit unions can leverage sophisticated analytics environments to analyze and gain valuable insights from expanded FCRA (Fair Credit Reporting Act) regulated data. These advancements lead to smarter application of data to better identify consumers who need help while ensuring continued access to credit.

Lending Through Accurate Data

In order to recover financially from the impacts of COVID-19, consumers will need to access credit from trustworthy lenders.

The government is acutely aware of the immediate and imperative need to lend and have taken steps to support this effort. The Federal Reserve’s broad array of actions to limit the economic damage from the pandemic included $2.3 trillion in lending to support households, employers, financial markets, and state and local governments. However, the federal government alone will not be enough to revitalize the economy – it must be a collective effort from the financial industry.

Economic recovery will not be possible without trusted creditorborrower relationships between credit unions and members. The challenge for credit unions will be lending to members who have a long-term pattern of creditworthiness but may have had short-term financial troubles at the onset of the COVID-19 recession. It is essential for credit unions to lend responsibly to protect both members and themselves. Leveraging accurate and timely data is key to achieving this.

With advanced data and analytics, credit unions can now identify members who can fulfill their financial obligations and ensure their members continue to have access to credit. Identifying and extending credit to these individuals will play an important role in getting our economy back on track. To create a more accurate picture of borrower creditworthiness, today’s credit unions can seamlessly incorporate expanded FCRA-data sets into their decisioning, including:

• Monthly cell phone, cable, internet and streaming service payments;
• Rental payments;
• Repayment of rent-to-own or small-dollar loans; and
• Trended data, which provides insights into credit accounts over a 24-month period, instead of a monthly snapshot.

When combining these expanded data sets with traditional credit data in the latest credit score models, a clearer picture of a member’s ability, stability and willingness to repay is created. At the same time, leveraging these expanded data sets can empower credit unions to responsibly lend to consumers who were previously unscoreable, even prior to the COVID-19 pandemic, further enabling financial inclusion and access to the credit economy.

Getting Started

As the economy begins to rebound and credit unions begin receiving more frequent and sizable borrowing requests, there are a few questions to consider:

1. Are you getting the bigger picture by working with the fullest data sets available? While there is no question the COVID-19 pandemic created significant financial challenges for many Americans, this is not the case for everyone. We must allow individuals who can still meet their financial obligations to have access to credit and ensure lenders can identify them. Leveraging expanded data sets and the newest scoring models that allow for this data to be easily integrated into current decisioning is critical.

2. Is your education for consumers up to date? Some consumers may not understand how the recent months impacted their ability to borrow. They may wrongly assume that they’ll be disqualified from a mortgage or auto loan due to temporary job loss. By updating your financial education materials and providing open, regular communications, you can help consumers improve their financial standing.

3. How can you aid those who don’t qualify? While some consumers are ready for a loan, there are many who may still be actively recovering. It is important to think about procedures and policies for communicating deferrals to these individuals while also sharing ways they can protect or improve their credit history.

Economic recovery will be a national, collective effort. With accurate and expanded FCRA-regulated data as a foundation, it is possible for consumers to achieve their economic ambitions and actively participate in our recovering economy.

Greg Wright EVP and Chief Product Officer, Experian CIS, North America Costa Mesa, Calif.