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Alternative Credit Scoring Models Matter

Competition ensures a healthy and productive market. Credit scores are no exception. 

A new study commissioned by VantageScore Solutions, a consortium of the three credit bureaus (Equifax, Experian, and TransUnion), found that institutional investors with exposure to asset-backed securities (ABS) and residential mortgage-backed securities (RMBS) are supportive of competitive credit scoring methodologies and desire more transparency and inclusivity among credit scoring models used to underwrite the loans that collateralize the securities they purchase. 

Specifically, the survey which included qualitative and quantitative research representing the views of a sum aggregate of $47 trillion in assets under management (AUM), revealed that: 

Among high-level takeaways from the survey, which represent the views of an aggregate of $47 trillion in assets, found that: 

  • Investors Want Alternative Scoring Models - 93% of investors are open to considering alternatives to conventional scoring methodologies – with a similar level of support from those who focus on ABS and RMBS specifically (91%); 
  • Investors Demand Financially Inclusive Credit Scoring - 85% of investors noted the importance of the development of models that are more inclusive and incorporate methodologies that will enable the inclusion of the majority of the underserved communities across the United States; 
  • More Transparency is Key - 58% agree greater transparency around how credit scores are calculated would be helpful; 
  • ESG Is Critical - Investors believe Environmental Social Governance (ESG) already plays an important role in investor decisioning with 76% expecting this phenomenon to continue in the future. 

"This research shows that investors want credit scores to keep pace with demographic shifts and advances in technology and data innovation–without lowering risk standards," said Silvio Tavares, President & CEO of VantageScore. "There is clearly demand to move away from the status quo with an emphasis on increased inclusivity and transparency, which are two areas where VantageScore is best in class." 

Click here to view the study in its entirety. 

About Author: Kyle G. Horst

Kyle G. Horst is a reporter for DS News and MReport. A graduate of the University of Texas at Tyler, he has worked for a number of daily, weekly, and monthly publications in South Dakota and Texas. With more than 10 years of experience in community journalism, he has won a number of state, national, and international awards for his writing and photography including best newspaper design by the Associated Press Managing Editors Group and the international iPhone photographer of the year by the iPhone Photography Awards. He most recently worked as editor of Community Impact Newspaper covering a number of Dallas-Ft. Worth communities on a hyperlocal level. Contact Kyle G. at [email protected].

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