Financial Inclusion: A Critical Driver of the Credit Economy

According to Oliver Wyman research, there are at least 28 million credit “invisibles” – consumers without traditional credit histories – in the U.S., and another 21 million consumers who are unscorable by the credit models most commonly used by lenders today.

That’s nearly 50 million consumers – or one in seven consumers in the U.S. – who are potentially unable to access mainstream credit options, or if they do have access, may end up paying significantly higher interest rates. Many of these invisibles are underserved individuals and those living in rural communities, recent immigrants and younger generations, all of whom are underrepresented in the current credit reporting system.

As a result, those tens of millions of consumers haven’t been afforded an opportunity to buy homes, attend college, start businesses or more importantly, build generational wealth.

The critically important point here is that just because people have limited to no traditional credit history, that doesn’t necessarily mean they represent a higher credit risk.

So, how does the industry level the playing field for these consumers?

Participants across the entire mainstream financial system have been helping drive a more inclusive credit economy by implementing credit-education initiatives, incorporating more inclusive data sources, improving data accuracy and integrity, and developing new innovative technology to help lenders assess a broader spectrum of consumers.

In short, lenders need help to extend credit to more consumers without unduly taking on additional risk. The credit scoring models that lenders use are only as effective as the information that they ingest. In addition to current credit data that may not tell the whole story of a consumer’s creditworthiness, new non-debt-related information is being included to give lenders a more comprehensive view of a consumer’s financial situation.

By including a consumer’s historical data on their bill payments for things such as rent, utilities or telecom services, lenders receive a broader view of that consumer’s track record for meeting their financial obligations. And giving consumers the ability to augment and enhance their current credit data to help lenders effectively assess their financial situation is working.

To accelerate information-sharing to help credit invisibles, consumers and lenders need even more transparency, resources and information that are beneficial for both parties. Recently, there have been advancements within the financial services industry to assess other data sources, such as Buy Now, Pay Later (BNPL) information, to give lenders more visibility into consumers’ ability and willingness to repay outstanding debt, particularly those with limited to no credit history.

The call-to-action here is twofold for both consumers and lenders.

For consumers, it’s to take advantage of opportunities to add non-debt-related payment information to their credit file.

For lenders, it’s to use the new information that consumers are placing in their credit profiles to make more informed decisions about a consumer’s financial situation.

Participants across the mainstream financial system believe individuals deserve the opportunity to build and maintain their credit for their financial well-being. This sense of empowerment, motivation and accreditation is important for a consumer to experience throughout their lifetime so they have the ability and desire to learn more and continue to take steps forward in the right direction.

Specifically for the credit-reporting industry, we need to continue to incorporate more data into the system to help lenders assess more consumers’ creditworthiness to broaden access to fair and affordable credit.

Wil Lewis is Global Chief Diversity & Equity Officer for Experian.