CreditVision New Account Risk Score study

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1 March 2015 CreditVision New Account Risk Score study Consumers and lenders can both benefit from the inclusion of payment history and trended credit data in assessing credit risk

2 Executive summary Over the last several years, TransUnion has made significant investments in our technology infrastructure including major upgrades to our credit report delivery and consumer relations systems The investment in our credit data repository has enabled an enhanced and trended view into a consumer s credit history while unlocking additional data elements including actual and historical payment amounts, up to 30-months of account history and 82-months of payment performance These new data have been used to develop a suite of credit solutions branded CreditVision. The CreditVision suite of solutions consists of the first in-market risk scores, marketing propensity models and premium algorithms that identify the following specific consumer behaviors: spend, payment, revolve and transact TransUnion LLC All Rights Reserved

3 Executive summary (cont.) With an objective to determine how the inclusion of CreditVision-trended data and risk scores impact a consumer s risk profile, we conducted a study on a random 10MM consumer files selected from our credit database. CreditVision risk scores conclusively yield superior performance to lenders and significant benefits to consumers: CreditVision risk scores scored approximately 57.5% of consumers that were deemed un-scoreable by traditional risk scores CreditVision risk scores assigned a higher proportion of consumers to the best risk tiers, making the best lender terms available to a larger proportion of the population Lenders now have the opportunity to expand their customer base without increasing overall levels of delinquency TransUnion LLC All Rights Reserved

4 How consumers are currently viewed by lenders, using a traditional risk score and how they would be viewed based on a CreditVision risk score Study conducted on 10MM unique consumer files randomly extracted as of December 2013 (nondeceased, Age > 18 years) Consumers were scored as of December 2013 using two different risk scores: Traditional Risk Score (TRS) CreditVision New Account Risk Score Performance observed on new loans opened in January-February 2014 to determine subsequent delinquency rate (loans becoming 90+ days past due through December 2014) TransUnion LLC All Rights Reserved

5 How consumers are currently viewed by lenders, using a traditional risk score and how they would be viewed based on a CreditVision risk score (cont.) Objectives were to: - Determine whether a significant number of U.S. consumers would be considered in a different risk tier (super prime, prime, near prime, sub prime) if scored by a CreditVision risk score that uses enhanced and trended credit report data elements, compared to a traditional risk score - Evaluate whether this shift would provide a net benefit to U.S. consumers by scoring more consumers and placing a larger portion of them in more desirable risk tiers Observation December 2013 Performance December 2014 Consumers scored Traditional Risk Score CreditVision New Account Score New loans opened 826.4K 12 month performance on new loans TransUnion LLC All Rights Reserved

6 CreditVision risk score study results

7 CreditVision New Account Score scores far more consumers and assigns a higher proportion of them to the best risk tiers Score distribution as of Dec 13 (Observation Period) Key findings 45% 40% 35% 30% 25% 20% 15% 10% 5% 17.6% Traditional Risk Score 7.5% 18.9% 25.0% 52.2% 14.2% 11.4% CreditVision New Account Score 40.2% 32.6% 12.0% 20.8% 53.4% +73% CreditVision proven to be a superior risk score over traditional risk scores: 1. A higher proportion of consumers assigned to the best risk tiers, over 2% more were categorized as prime and super prime (53.4% vs 52.2%) 2. The number of consumers in the super prime risk tier increased over 73% using the CreditVision New Account Score 3. Inclusion of new data such as payment amount and payment history are primary drivers in the superior evaluation of a consumer s creditworthiness 0% Unscored Sub Prime Near Prime Prime Super Prime Risk Tiers based on the value of their Vantage Score 1.0 using traditional risk score definitions: Sub prime ( ) Near prime ( ) Prime ( ) Super prime ( ) 4. Consumers historically denied access to best in market credit products due to use of static data in traditional risk models benefit from this advance 5. Lending community benefits from new prospects to market to without compromising their risk profile TransUnion LLC All Rights Reserved

8 CreditVision successfully scored approximately 57.5% of population that the Traditional Risk Score failed to score Thousands Score distribution as of Dec 13 (Observation period) 2,000 1,800 1,600 1,400 1,200 1, Traditional Risk Score 1.755MM 745.6K 608.4K CreditVision New Account Score Consumers Unscored by Traditional Risk Score 290.5K 104.7K Risk Tiers based on the value of their Vantage Score 1.0 using traditional risk score definitions: Sub prime ( ) Near prime ( ) Prime ( ) Super prime ( ) 5.8K Unscored Sub Prime Near Prime Prime Super Prime Key findings CreditVision provides consumers and lenders benefits not available through Traditional Risk Scores: 1. Approximately 1.76MM (17.6%) consumers in the 10MM record sample were unable to receive a score using Traditional Risk Score 2. CreditVision scores approximately 1MM or 57.5% of these consumers 3. Over 11% of these newly-scored consumers have prime or super prime credit profiles 4. Consumers with thin credit files and historically shut out of the credit markets due to static risk scores now benefit from the innovation built into the CreditVision suite of risk scores 5. Lending community currently reliant on external and alternative data elements to assess risk of thin file population will benefit from the use of CreditVision data as a primary risk assessment tool TransUnion LLC All Rights Reserved

9 Consumers who opened at least one new account with measurable performance over 12 months New Account (Jan-Feb 14) Score distribution as of Dec 13 Key findings 60% Traditional Risk Score CreditVision New Account Score Within the 10MM sample in Dec 13, approximately 826.4K consumers opened at least one new account during Jan/Feb 14: 50% 49.3% 42.7% 1. CreditVision New Account Score scored 1.3% more than the traditional risk score 40% 30% 20% 10% 0% 1.7% 0.4% 17.3% 17.1% 17.5% 15.9% 14.3% 23.9% Unscored Sub Prime Near Prime Prime Super Prime Risk Tiers based on the value of their Vantage Score 1.0 using traditional risk score definitions Sub prime ( ) Near prime ( ) Prime ( ) Super prime ( ) 2. The proportion of consumers regarded as super prime would increase by about 67% 3. Consumers who are unscoreable or sub prime would decrease by 7% 4. Overall bad rate distribution for the new accounts: Score CreditVision New Account Unscored Sub prime Near prime Prime Super prime 19.1% 20.1% 6.0% 1.3% 0.1% TRS 23.5% 18.2% 5.7% 1.1% 0.1% TransUnion LLC All Rights Reserved

10 Assessing the positive impact CreditVision has on the US population US population distribution Key findings U.S. Consumers, in Millions Traditional Risk Score CreditVision New Account Score Approximately 26.5MM consumers who were unable to be scored using a traditional risk score can now be scored with the CreditVision New Account Score: 2. Upwards of 23MM more consumers are now considered super prime consumers 3. The number of consumers deemed prime or super prime has now increased by nearly 3MM 4. Consumers who historically have been denied access to traditional credit products because of no credit score can now confidently shop for credit 0 Unscored Sub Prime Near Prime Prime Super Prime Risk tiers based on the value of their Vantage Score 1.0 using traditional risk score definitions Sub prime ( ) Near prime ( ) Prime ( ) Super prime ( ) 5. Lenders have access to new creditworthy and credit seeking populations for universe expansion 6. CreditVision provides consumers a pathway to developing and maintaining a positive credit relationship with the lending community TransUnion LLC All Rights Reserved