Markets Wired

Report Stresses Solid Underwriting, Risk Management, Monitoring and Training

ALEXANDRIA, Va. (April 12, 2016) – Credit unions may have opportunities to serve members who need to build credit histories, according to a new report by the National Credit Union Administration.

Serving the Credit-Invisible, available online here (opens new window), explains how credit unions can build loan programs—based on sound underwriting, appropriate risk management, loan monitoring and staff training—that can help them reach this underserved population. The report details how to evaluate a loan applicant who is “credit-invisible” and describes best practices for serving these members within the normal boundaries of safety and soundness.

“Automated credit scoring models unintentionally shut out millions of young borrowers and other consumers whose timely payments are not being reported to credit bureaus,” said NCUA Board Chairman Debbie Matz. “The lack of a credit score can subject these consumers to costly loan pricing in the form of higher interest rates and fees. Other lenders ignore ‘credit-invisible’ consumers altogether. Yet, credit unions using more traditional underwriting may find that ‘credit-invisible’ applicants are indeed creditworthy. I encourage credit union officials to consider the strategies in our report as part of their efforts to serve everyone in their field of membership.”

“Nearly 20 percent of the American adult population doesn’t have a credit score,” said William Myers, Director of NCUA’s Office of Small Credit Union Initiatives. “This paper explores safe methods for bringing these people and their families into the credit union system.”

Credit-invisible consumers may lack credit scores because they have limited or incomplete credit histories. They are not necessarily subprime borrowers, but their credit activity may not be reported to a credit bureau. Nonetheless, these consumers may have a good history of making timely payments for expenses like rent, insurance and utilities. The Consumer Financial Protection Bureau reported in 2015 (opens new window)that as many as 26 million Americans may fall into this category.

NCUA’s Office of Small Credit Union Initiatives prepared the report. The office fosters credit union development and the effective delivery of financial services for small credit unions, new credit unions, minority depository institutions and credit unions with a low-income designation.