Traditionally, non-prime consumers are considered a risky investment by businesses in the financial industry. This is an unfortunate misconception, as many consumers that struggle to obtain traditional credit can pay their bills and, more importantly, pay back loans they’ve taken out. The Clarity database sees hundreds of creditworthy consumers taking out small-dollar credit loans every day with every intention of paying them back and in most cases they do.
Most small-dollar credit transactions aren’t seen by traditional credit bureaus and it’s becoming increasingly common for financial institutions to be missing out on a large population of creditworthy consumers. Let’s look at an example.
In this profile, a consumer has received several lines of credit in two forms: small-dollar loans and installment loans. In two years, they have taken out 11 loans amounting to a total $6,980, all of which have been paid off except one.
Despite their potentially low credit score, this consumer has three bank accounts that are used for managing money. Two of their bank accounts are possibly used as savings accounts or to receive paychecks from an employer, while typically only one account is used to receive loans and deliver loan payments.
This shows that this consumer has some semblance of responsible money management. Based on their ability to pay loan obligations in a timely manner, traditional credit might be the next step for them.
Unfortunately, many financial institutions would be scared away by this person’s credit score, payment methods, or previous spending habits. This is despite their recent activity, which illustrates that they’re a creditworthy individual.
Sadly, this is the reality that thousands of consumers face every day, forcing them to seek credit and services designed for non-prime consumers. If these individuals were granted traditional credit, they could translate into loyal, paying customers.
Did you expect to see a profile of a non-prime consumer who is also creditworthy?
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For more information, browse the rest of the nonPrime 101 blog, or view our data findings.