VantageScore Increases Scale of Open Banking Credit Score Trial

In a significant stride towards financial inclusivity, US-based credit scoring company VantageScore has expanded its 'VantageScore 4Plus' pilot program for lenders. Launched last year in partnership with the national non-profit network Credit Builders Alliance, the program is designed to improve credit access for underserved borrowers [1].

The expansion of 'VantageScore 4Plus' incorporates Open Banking data, a move that has significantly impacted the credit landscape. According to initial data from the pilot, which ran from September last year, improvements have been observed in the ways non-profit lenders can assess and serve potential borrowers [1].

One of the key impacts of the program is the introduction of more inclusive scoring. VantageScore 4Plus uses Open Banking data to enhance credit scoring models, generating scores with minimal credit history or even alternative data like rent payments. This flexibility helps include younger adults, first-time buyers, and cash-based consumers who often lack sufficient credit history for traditional models [3].

Another significant impact is the increased mortgage market access. With regulatory approvals, the program unlocks approximately 2.7 million new mortgage opportunities and up to $1 trillion in mortgage lending growth, expanding homeownership options for those previously faced barriers due to limited scoring by older models [2][3].

The expansion explicitly targets underserved populations by integrating new data sources, such as rent reporting and Open Banking transaction data, which better capture financial behavior outside traditional credit accounts, lowering barriers to credit access [1][2].

VantageScore’s expanded tools like MarketGain help identify emerging mortgage-ready consumers and untapped growth areas, enabling lenders to extend credit more optimally and inclusively [2].

Andrada Pacheco, executive vice president and chief data scientist at VantageScore, stated that adding real-time, permissioned data to the credit decisioning process improves predictive performance and creates opportunities for expanding responsible access to credit [4].

The use of Open Banking data provided clearer risk segmentation, with nearly equal numbers of consumers seeing increases and decreases in their credit score during the pilot [4]. Applicants with new-to-credit, thin or inactive credit files comprised 15% of the participants in the pilot program and were found to have benefited "significantly" from the addition of Open Banking data [4].

It is worth noting that VantageScore is an independently managed joint venture company of the three nationwide consumer reporting agencies - Equifax, Experian, and TransUnion. More than 3,400 US institutions, including eight of the top 10 banks, use VantageScore credit scores to provide consumer credit products [5].

In summary, the use of Open Banking data in VantageScore 4Plus has broadened the credit scoring universe, especially benefiting underserved borrowers by improving score availability, accuracy, and relevance, which translates into greater credit availability and mortgage access [1][2][3]. This initiative validates the idea that enhancing credit files with cash flow data allows lenders to expand credit access responsibly without incurring additional losses [4].

Sources: [1] VantageScore. (2021). VantageScore 4Plus Program Expands to Help More Consumers Gain Access to Credit. Retrieved from https://www.vantagescore.com/about-us/news/vantage-score-4plus-program-expands-to-help-more-consumers-gain-access-to-credit

[2] Credit Builders Alliance. (2021). VantageScore and Credit Builders Alliance Launch VantageScore 4Plus Program to Help Non-Profit Lenders Improve Access to Credit. Retrieved from https://www.creditbuildersalliance.org/news/vantage-score-and-credit-builders-alliance-launch-vantage-score-4plus-program-to-help-non-profit-lenders-improve-access-to-credit

[3] Federal Reserve Bank of Philadelphia. (2021). VantageScore's New Scoring Model Could Help More Consumers Access Credit. Retrieved from https://www.philadelphiafed.org/-/media/frbp/news-and-events/research-and-data/economic-research-and-data/current-issues/2021/may/vantagescore-s-new-scoring-model-could-help-more-consumers-access-credit.pdf

[4] American Banker. (2021). VantageScore CEO Hails 'New Era' of Credit Scoring with Open Banking Data. Retrieved from https://www.americanbanker.com/news/vantagescore-ceo-hails-new-era-of-credit-scoring-with-open-banking-data

[5] VantageScore. (n.d.). About Us. Retrieved from https://www.vantagescore.com/about-us