Combining data for better loan decisions

Combining data from Open Banking, Credit Bureau and other data sources ensures broader, more accurate affordability assessment.

Open Banking on its own can lead to an increased decline rate, even though credit risk might be reasonable.

For example, an applicant with a bounced Direct Debit or Standing Order might be viewed as being more likely to miss payments on a loan. However, that’s not always the case. In fact, three-quarters of applicants who have two or more bounced payments over the last month have not missed any payments on their credit agreements in the last year. Sometimes Open Banking ‘proxies’ can lead to unfair denial of credit.

Buy Now Pay Later (BNPL) and credit risk

BNPL isn’t necessarily a ‘bad’ form of credit. Most people pay on time and benefit from being able to spread payments more conveniently.

However around 1 in 10 loan applicants are declined because of a perceived excessive use of BNPL. Use of this form of credit becomes problematic when combined with credit cards. 1 in 4 applicants with high BNPL use are also close to, or over, their credit card limits. 1 in 5 will have applied for more than three forms of credit in the last three months.

Again, this suggests that declining a credit application just for use of BNPL may not be reasonable, because the clear majority of people manage this form of credit well. Insights into credit card use and recent searches are required to make a fair decision.

Gambling and creditworthiness

65% of applicants who are spending more than 10% of their income gambling have very poor credit scores. Alarmingly, nearly three-quarters have either missed a payment or defaulted on an account in the past year. There’s a very clear correlation between gambling and elevated credit risk. But again, not everyone who gambles is a poor credit risk.

Broader, better decisions

As these examples show, breaking down barriers between datasets improves affordability assessment. Harnessing NestEgg’s Decision Engine allows for deeper, more comprehensive evaluations. Such an approach moves beyond credit scoring without abandoning otherwise useful Credit Bureau data. Credit risk is not a binary metric measured by either credit score or spending patterns. Fair decisions are only possible by taking into account data sources that cover the broad breadth of our financial lives.

Next steps

Don’t fall into a data silo! Whether you’re looking to grow your loan book with more accurate and fairer decisions or you’re an existing NestEgg user yet to explore the latest affordability rules, contact NestEgg to discuss how combining data for decisioning can lead to more accurate, fairer decisions and significant loan book growth.