In Credit, Industry, Underwriting

What data should be important?

As a marketplace lender to small businesses, we obtain quite a bit of insight from looking at conventional data from personal credit reports. That score itself is important and so are other data points. We learn a lot from credit utilization data, trade-line age, the types of accounts an applicant has open, recent inquiries, and whether or not they own real estate among many other data points that feed into our credit algorithm.

2 is better than 1: Credit scores and Bankruptcy PLUS

While exploring which of the personal credit scores we’d use and from which providers, we examined lots of different reports and data points. We happened upon a score called Bankruptcy PLUS provided by Experian. During discussions regarding the value of using such a score, the explanation we received was pretty neat; credit scores calculate how an applicant has performed in the past, while Bankruptcy PLUS predicts the likelihood of future bankruptcies on any type of account within 24 months.

As our longest available term is 24 months, and we were building with a goal of 9 month terms, this type of score seemed attractive. Learning further that Experian had invested significant research to level its proprietary set of attributes across all three credit reporting agencies, ensuring that Bankruptcy PLUS utilizes the richest data possible, only added to our desire.

Interestingly, scores vary on a range from 1 to 1400, and similar to a golf score, the lower the better.

Testing the Bankruptcy Plus score data on our model

Having already built out our scoring model, Herio Insight, we decided to modify it just a bit, to include this score with minimal weighting; mostly to see if there was some predictability in its results.

We had agreed to wait a full vintage cycle utilizing our initial credit model before making any adjustments. Coincidentally, that occurred just after year’s end. Looking over more than 7,000 applications, 1,200 approvals and over 500 funded loans we found that Bankruptcy PLUS  is indeed predictive, and have since made some hard cuts based on this score and have increased its weighting in our model.

As it is important for us all to succeed as small business lenders, adding tools that’ll help us to better approve and price our offerings is imperative. Do yourself a favor and check this one out.

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