Panning for Prime Gold in the Murky Subprime Waters

Equifax defines a subprime borrower as “anyone who doesn't have good enough credit to qualify for a creditor's prime rates and terms.” Traditionally, this would largely be anyone that missed payments on credit accounts, had a loan charge-off, a repossession, or even foreclosure. The problem is that you may also be classified as subprime if you simply don’t have enough credit history to generate a credit score. This can be anyone from a college graduate entering the workforce to a retiree with a?mortgage paid-off over seven years earlier. In fact,

Nobody wants to be labeled subprime, especially if you have done nothing wrong financially. If you work a steady job and pay all of your bills on-time (just not bills that are sent to the credit reporting bureaus), it can be hurtful and downright insulting to be assigned the “s-word”. Being classified as subprime can feel insulting. Even worse, it will cost you in terms of higher interest rates and subsequently higher monthly payments.

Take the illustration below, for example. People with higher credit scores (over 760 FICO) received lower mortgage rates than those at the 90th percentile (below 640 FICO). The difference in extra interest payments over 30 years can exceed $100,000. It could be a costly lesson for first-time home buyers that don't take advantage of re-financing when interest rates fall and their credit score goes up. And that's assuming the borrower could be approved for the loan to start with.

But how do lenders and creditors find good first-time borrowers that don’t have a credit history? Finding those hidden prime borrowers in the murky subprime waters is like panning for gold. It’s a valuable exercise, but it is very tedious and time consuming. That’s where smart solutions like #crediture come in. It’s a financial trust platform that evaluates borrowers based on three key factors: affordability, intent, and identity. Crediture applies a lot of data science and machine learning to personal financial data to draw creditworthy insights from hundreds of data points, just like a gold prospector’s trusty pan. It’s a way to evaluate a person’s reliability based on their current earning, saving, and spending behavior as opposed to how they managed credit accounts in the past.?

Any organization that offers products and services with buy-now and pay-later credit terms will benefit from alternative credit data. Used car dealerships are natural on-ramps to the credit highway along with secured credit cards. Through the economic recession, even mortgage brokers can build a competitive edge by servicing qualified borrowers that are still considered subprime; they just need the right tools.

Credit scores are a good starting point for evaluating financial trust. But they are not the end-all solution when your panning for those golden prime borrowers. Evaluating a borrower with both a FICO score and a Crediture Score? offers a complete picture of that person's true creditworthiness.

The gold is out there, you just need the right tools.

For more information about Crediture, please visit https://www.crediture.com