The intense focus and competition among lenders for the super prime and prime prospect population has become saturated, requiring lenders to look outside of their safety net for profitable growth. This leads to the question “Where are the growth opportunities in a post-recession world?”
Interestingly, the most active and positive movement in consumer credit is in what we are terming “emerging prime” consumers, represented by a VantageScore® of 701-800, or letter grade “C”. We’ve seen that of those consumers classified as VantageScore C in 3Q 2006, 32% had migrated to a VantageScore B and another 4% to an A grade over a 5-year window of time. And as more of the emerging prime consumers rebuild credit and recover from the economic downturn, demand for credit is increasing once again. Case in point, the auto lending industry to the “subprime” population is expected to increase the most, fueled by consumer demand. Lenders striving for market advantage are looking to find the next sweet spot, and ahead of the competition.
Fortunately, lenders can apply sophisticated and advanced analytical methods to confidently segment the emerging prime consumers into the appropriate risk classification and predict their responsiveness for a variety of consumer loans. Here are some recommended steps to identifying consumers most likely to add significant value to a lender’s portfolio:
- Identify emerging prime consumers
- Understand how prospects are using credit
- Apply the most predictive credit attributes and scores for risk assessment
- Understand responsiveness level
The stops and starts that have shaped this recovery have contributed to years of slow growth and increased competition for the same “super prime” consumers. However, these post-recession market conditions are gradually paving the way to opportunistic profitable growth. With advanced science, lenders can pair caution with a profitable growth strategy, applying greater rigor and discipline in their decision-making.