Written by: Eric Bank
Edited by: Lillian Guevara-Castro
Reviewed by: Adam West
Key Takeaways
- The first VantageScore 4plus™ pilot showed that adding open banking data elevated the credit grade of 33% of subprime and 41% of near-prime consumers.
- Credit unions that used VantageScore 4plus™ also saw a 4.8% improvement in the ability to predict compared with VantageScore 3.0.
- The pilot programs represent a shift in course for alternative data providers to power risk management and financial inclusion.
Two pilot programs using VantageScore‘s new VantageScore 4plus™ model that leverages alternative open banking data showed significant improvements in credit risk prediction and expanded access to credit for underserved consumers.
In a test jointly run with Michigan State University Federal Credit Union and Patelco Credit Union, the company’s VantageScore 4plus™ model elevated 33% of subprime and 41% of near-prime consumers to higher credit tiers.
By adding consumer-authorized transaction-level data, the model is demonstrating real-world impact — not just theoretic increases — that can lead to smarter underwriting, lower default rates, and profitable growth by responsibly expanding credit access to underserved and subprime segments..
The credit industry for years has hoped to bring underserved borrowers into the economic mainstream. But efforts to supplement credit scoring with alternative data have struggled time and again on grounds of privacy, accuracy, or regulation.
VantageScore 4plus™ seeks to tread the middle path by using open banking data, with consumer consent, to complement scoring in a large-scale, compliant way.
How the Pilot Worked
For the pilot projects, credit unions shared anonymized, consumer-authorized data streams of income inflows, regular expenses, and account balances. This data was taken directly from consumers’ bank accounts through open banking connections, which were becoming more integral to the data ecosystem of the financial sector.
By layering these insights on top of more typical credit report data, VantageScore could better assess a consumer’s stability and cash flow. In the pilot of Michigan State University Federal Credit Union, 33% of the subprime and 41% of the near-prime borrowers were upgraded to a higher credit tier.
In a test at Patelco, the model’s ability to predict improved by 4.8% compared with that of VantageScore 3.0.
The impact isn’t just theoretical. Smarter risk evaluation by lenders can mean wiser pricing and fewer defaults. For consumers, smarter credit evaluations can translate into reduced borrowing costs and broader financial access.
Why It Matters to Lenders
The enhancements in predictiveness offer seemingly obvious business value. A 4.8% increase doesn’t sound enormous — but at large scale, incremental increases can substantially trim charge-offs or boost approval rates.
Open banking also enables lenders to view behavior that credit reports can’t. A consumer, for example, might have little or no credit history but steady income and good spending behavior. Traditional models overlook that detail. VantageScore 4plus™ doesn’t.
By acting on live spending behavior, lenders can identify better customers than their legacy score suggests. That gives them a price advantage, risk selection benefit, and a way to promote deeper financial inclusion.
Implications for Credit Inclusion
This approach is most relevant for at least 45 million Americans who are credit invisible, thin-file, or misclassified under the legacy models. These consumers tend to be low-income, young, or in underserved segments.
With open banking data, their everyday financial activities — checking, saving, and spending — could for the first time be used in their credit evaluation. That change has both a commercial and a social impact.
The inclusion of open banking data can help provide a clearer picture for risk management when assessing creditworthiness.
Credit unions, for one, can reap significant rewards. Because they are member-focused organizations, they continually look for better ways to serve individuals with less-than-flawless credit history.
The pilots demonstrate that with the appropriate data and the appropriate model, financial inclusion does not have to be in conflict with risk management.
“These results show that open banking data, when used responsibly and in combination with credit file data, can dramatically improve both risk management and financial inclusion,” said Dr. Andrada Pacheco, Executive Vice President and Chief Data Scientist at VantageScore.
“What excites us most is the real-world impact — helping lenders say yes more often to credit-worthy consumers,” Pacheco continued.
What’s Next for VantageScore
The VantageScore 4plus™ pilot is still in early-stage form, but first results are catching attention. More credit unions and fintech companies may participate in future rounds of testing. In the meantime, regulators are closely watching to ensure data usage remains voluntary and transparent.
If wider adoption kicks in, VantageScore 4pluss™ can be a game-changer for credit scoring. In essence, the message is simple but powerful: What’s in your bank account can be just as good an indicator of creditworthiness as what’s in your credit history.
With mature open banking infrastructures and rising permissioned data availability from consumers, expect the scoring landscape to transform at a fast pace. Good news for lenders: new tools. Good news for borrowers: a shot at the credit they deserve.
