A NEW credit risk index for the consumer lending sector has been launched, utilising Open Banking to help lenders better understand potential borrowers.
The index, unveiled on Tuesday by data and analytics firms AccountScore and Equifax, is based on the transactional information found within a consumer’s bank account. It can be used as a standalone product or combined with traditional credit risk metrics to provide a comprehensive understanding of a consumer’s affordability and creditworthiness.
As well as providing lenders with more granular insight, the index produces 26 indicators for the consumer to give them an understanding of their rating and the different factors which affect it. This means there is full transparency over credit risk assessment and helps lenders explain their decisions more effectively to their customers.
Open Banking is a data-sharing initiative that mandates high street banks to share anonymised customer data with approved third parties, to improve competition within financial services.
“We are very pleased to release the Financial Health Index to the market,” said Emma Steeley, chief executive of AccountScore.
“It’s a truly revolutionary product that capitalises on the opportunities provided by Open Banking, both for lenders to gain more insight into their applications but also in allowing consumers to more effectively demonstrate their eligibility for financial products.”
Dan Weaver, head of innovation at Equifax, added: “The Financial Health Index is a simple way for lenders to factor into their credit decisions the common payments made by consumers which are not found, or are not always present in a credit report, such as commitments in relation to rent, council tax, utilities and insurance as well as evidencing their income, which will help consumers better demonstrate their affordability and creditworthiness and hopefully lead to more suitable financial products being offered.”