The Making Ends Meet survey was sent out in March 2019 and responses were received by May 2019. In the survey, the CFPB asks consumers questions about various aspects of financial well-being, such as challenges faced in making various payments and perceptions of financial stability. The CCP is a 1-in-48 deidentified sample of credit reports from one of the three nationwide consumer reporting agencies. We conduct this analysis using responses from the CFPB’s Making Ends Meet survey, which is sampled off our CCP. The CFPB is undertaking rulemaking to help consumers share such data with lenders willing to use it in their underwriting. Using positive cashflow data in underwriting may improve access to credit for populations with historically low credit scores. 7 However, the evidence in this blog suggests that cashflow data may help lenders better identify borrowers with low likelihood of serious delinquency, even if these borrowers’ credit scores may have otherwise prevented them from receiving credit. 6 Given the small sample sizes of some demographic groups in our data, we do not break down results by self-reported race, ethnicity, or any other demographics, and similar issues might arise with cashflow metrics. 5 The finding that cashflow data are predictive of serious delinquencies (even for people with the same credit scores) is consistent with other reports and provides evidence on which measures of cashflow appear to have more stable effects.Ĭredit scores may in part reflect the unequal circumstances that people face, and there are ongoing debates regarding equity and fairness. While only one of our three cashflow proxy results is statistically significant, each of the results is large in magnitude. Consumers with positive self-reported cashflow outperform by 20 percent or more depending on the cashflow proxy used. Our analysis suggests that people who self-report positive cashflow perform considerably better than people who self-report less positive cashflow, even when holding credit scores constant. 4 We focus on people with credit scores under 720 (below the superprime segment) because people with superprime credit scores are very unlikely to become seriously delinquent, so there is a smaller margin for cashflow data to be informative. Though our results suggest that using cashflow data may improve underwriting, there are two major caveats: our effective sample size is small (only hundreds of consumers), and the cashflow measures are self-reported proxies. 3 The three proxies we use are high accumulated savings, regularly saving and no overdrafts, and paying bills on time. In this blog post, we use the CFPB’s Making Ends Meet survey and the linked Consumer Credit Panel (CCP) to show that three self-reported proxies for cashflow appear predictive of serious delinquency, even when analyzing people with similar traditional credit scores. More research is needed to understand the extent to which cashflow data might enable better predictions about a person’s ability to repay their loans. 1Ĭashflow data (broadly defined as various inflows, outflows, and accumulated amounts in checking and savings accounts) may provide lenders with more information about how applicants manage current obligations than they could learn from applicants’ credit repayment histories alone. Credit reporting data include individuals’ performance on a variety of credit products, such as mortgages, credit cards, auto loans, and student loans, as well as certain public records and some other forms of lending. Lenders frequently use third party credit scores, and many also develop their own proprietary models. Most loan underwriting in the United States makes use of credit reporting data to evaluate repayment risk.
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