‘No-Scores’ Offer Lenders ‘Big Population,’ FCA Exec Says

FORT WORTH — Lending to “the limited” or no-file consumers could seem like  “a huge indication of loosening your credit standards,” but financial providers can capture additional volume by lending to these consumers, Karl Stabler, Flagship Credit Acceptance’s vice president of risk analytics, told attendees at the Auto Finance Risk & Compliance Summit yesterday.

“You are lending to anyone with a pulse at this point,” which can also give the perception that lenders are misrepresenting their collateral pool, Stabler added.

When a lender represents a weighted average Fico score of 600, they are not including their no-scores, “because it’s a null value, essentially,” he said. The weighted average is 600, but the lender is “originating 30% no hits, and that’s an issue. You want to make sure that perception is not a reality, and you want to make sure that’s well-documented, and shown to anybody looking at your portfolio.”

One in four Americans are traditionally unscoreable, according to a March 2015 study by PERC (Political and Economic Research Council), and “that is a big population you can build on if you have the right mechanisms and controls in place to do so,” Stabler told attendees. “It can diversify your product offering to both the dealer and consumer as well,” he said.

Additionally, 80% of the unscoreable applications could be scored with additional data, according to the study, and 60% of that 80%, scored low-to-moderate risk, he said.

“A lot of these no Ficos do actually have tradeline data,” Stabler said. “The Fico score won’t populate if the trade hasn’t been updated in the last six months, the consumer doesn’t have a trade older than six months, or they are dead — those are the three stipulations to receive an invalid Fico score.”

The bottom line is, “you can still evaluate the consumer with credit requirements, but the information will be a lot thinner for the lender to get an idea of what the consumer has.”