Property analytics and service provider, CoreLogic (CLGX) said that adopting the general practice of using more than one credit score could actually increase mortgage lending.
CoreLogic commissioned a study from CEB TowerGroup to see if supplemental credit data helps lenders make more informed choices, or instead cuts off financing to a greater degree. CoreLogic says it found the former to be true.
The report, titled “Enhanced Credit Data and Scoring: Deeper Insight into Mortgage Applicants,” concludes that using new credit information and scoring analytics can guide lenders to improve their risk management techniques, minimize underwriting costs and expand their lending portfolio.
“In an effort to fund more loans while mitigating potential losses, lenders have increasingly shown an interest in new data sources beyond the traditional national credit reporting agencies to help better predict consumer credit risk across a broader range of credit profiles,” said the CEB TowerGroup’s senior research director, Craig Focardi.
Results from a CoreLogic and FICO joint analysis were studied, comparing the anticipated power of the FICO Score that most lenders utilize today with the newly launched FICO Mortgage Score Powered by CoreLogic, which includes critical risk insights from the supplemental credit data contained in the CoreScore credit report.
The results of study proved that the traditional FICO Score, as well as the new score, rank mortgage credit risk well. Most of the loans that eventually default fall within the most risky loans as determined by the credit scores. With the new FICO Mortgage Score only, 10% more bad loans were uncovered.
“Extending credit to more consumers is top of mind for lenders and consumers. Lenders want quantitative evidence of how supplemental credit data can improve their lending decisions,” said Tim Grace, senior vice president of Product Management at CoreLogic.