Credit scoring for low income customers may become easier. An enterprising BHPH Dealership, Tricolor in Texas, has partnered with WorkRecords to develop a new credit scoring system. This system is intended for hourly workers who earn less than $16.00 per hour, many of whom are unbanked, and will likely help many BHPH customers find loans that work for them. Could this be the future for the Buy Here Pay Here industry as a whole?
This partnership was born out of a desire to fix a long-term problem in traditional credit scoring system. According to the Consumer Financial Protection Bureau (CFBP) as many as 45 million US residents either cannot be scored accurately by typical credit bureaus or cannot be scored at all. For many, this is because they are hourly workers paid below a certain hourly wage. In fact, a stunning 60% of the American workforce earns less than $16.00 per hour.
Daniel Chu, CEO of Tricolor, does not believe that these workers– or at least a large portion of them– should be denied the ability to finance.
“Our conviction is that ‘ability to pay’ is the best predictor of loan performance for this demographic profile, and we intend to apply our experience in lending to the unbanked consumer,” he explained in a Globe News Wire interview.
WorkRecords, a technology company based in Dallas that specializes in labor platforms connecting employers with workers, workspaces and suppliers, proved ready to partner with Tricolor in this endeavor. Using nearly a decade of data and Tricolor’s experience, the two companies have created an innovative credit scoring system. Tricolor has a tried and true system for scoring low no-file and thin-file consumers, largely from the Hispanic population, and validating through ABS. This system offers “deep insights into credit worthiness,” and serves as the basis for the new risk model developed by the partnership.
And what a model it is! In segments, it assesses different data from normal credit scoring systems, allowing it to accurately determine low-income buyers risk and ability to pay. The result is a credit scoring system that actually gauges the reality of an hourly worker’s loan risk. Tricolor can clearly see how much car hourly workers can afford, and which are likely to pay back their loans. Where BHPH used car sales and credit are concerned, this could be a game-changer.
Although at this time, Tricolor is the only BHPH dealer using this new system, other dealerships should take note. We could be looking at the future of Buy Here Pay Here lending.
Source: Globe News Wire