In the competitive financial services landscape, credit unions are known for their emphasis on personalized service. But as the financial industry moves towards more sophisticated, data-driven decision-making, credit unions must also evolve their approach to credit scoring. One of the most impactful advancements in recent years is the use of trended data; a type of credit data that captures patterns of behavior over time, rather than providing a static snapshot.
What is trended data and why it is different?
Traditional credit scoring models rely on a snapshot of a member’s credit history at a single point in time. This includes details like the current balance, credit utilization, and payment history. While these factors are useful, they provide a limited view of the member’s financial behavior. Trended data, on the other hand, looks at credit behavior over time, often capturing up to 24 months of data.
Trended data includes insights into:
- Payment patterns: Whether your member consistently pays the full balance, makes only the minimum payment, or carries a balance from month to month.
- Credit utilization trends: How a member’s credit utilization has fluctuated, indicating if they are becoming more responsible or financially stretched.
- Debt trajectories: Changes in outstanding debt, showing whether debt levels are increasing, decreasing, or remaining stable.
Why does trended data matter for credit scoring?
Trended data can provide a more holistic view of your member’s financial behavior and creditworthiness. By looking at patterns over time, your lenders and decision makers gain better insights into the member’s likelihood to repay a loan and if they will manage the debt responsibly. Here’s why trended data is becoming essential for accurate credit scoring:
- Improved predictive power: Trended data improves the predictive power of credit scoring models. When credit scoring models incorporate behavioral patterns, they offer a more reliable assessment of risk, reducing default rates and improving overall portfolio health.
- Inclusion of 'near-prime' borrowers: Traditional scoring models often classify borrowers in a single category based on a static snapshot, which may overlook emerging creditworthy trends. Trended data can reveal that a member with a relatively low score is on an upward trajectory, demonstrating improving financial habits, and potentially positioning them as a lower-risk candidate.
- Enhanced loan terms and pricing: With richer data, credit unions can tailor loan terms and interest rates more accurately, providing better loan pricing for your members. This precision can lead to competitive advantages and better loan performance.
- Consumer insights for personalized member services: As credit unions, who prioritize member experience, trended data enables a deeper understanding of each member’s financial situation. This data can be used to provide personalized advice, recommend suitable products, and design financial wellness programs that align with members’ goals.
What is the benefit of trended data and how can it help your credit union?
As credit unions, we are in the business of "people helping people," and trended data aligns well with this mission of offering member-centric financial solutions. Here’s how credit unions can benefit specifically:
- Better member retention and satisfaction: Offering tailored products based on nuanced understanding of members’ financial trajectories can enhance member loyalty and satisfaction, as members feel their unique financial situations are acknowledged and catered to.
- Reduced loan delinquencies and losses: By gaining a more accurate picture of a member’s creditworthiness, credit unions can reduce instances of loan delinquency and charge-offs. Trended data helps identify emerging financial distress, allowing credit unions to intervene early, potentially with restructuring options or financial counseling.
- Expanded lending opportunities: Many credit unions aim to serve the underserved. Trended data allows for a more nuanced view of credit risk, enabling credit unions to extend credit to “near-prime” borrowers who may have been excluded by traditional scoring methods.
- Compliance and risk management: As regulations around fair lending become stricter, trended data allows credit unions to make lending decisions based on a more comprehensive view of risk. This transparency could lead to fewer regulatory concerns.
Should your credit union consider switching to trended data?
Trended data is more than just a trend; it’s a powerful tool that enhances credit scoring accuracy, fosters financial inclusion, and strengthens member relationships. For credit unions, switching to trended data could be a strategic move that aligns with their mission to serve more members in their communities. By capturing a fuller picture of a member’s financial behavior, credit unions can make better-informed lending decisions, create more inclusive credit policies, and design products that meet members' evolving needs.
As more financial institutions adopt trended data, credit unions that do not make the switch risk being left behind. By embracing trended data, credit unions can stay competitive while reinforcing their commitment to financial responsibility and member support.
The shift to trended data represents an investment in members’ financial futures. By integrating this powerful data into credit scoring models, credit unions can unlock new opportunities, mitigate risk, and build stronger relationships with their members. In an era where data-driven insights are key to competitive advantage, trended data could be seen as a valuable asset for credit unions. Have you considered making the switch?
