Such new to credit customers were historically difficult to assess because they have no formal credit history. But they are the fastest growing borrower group for banks to tap, though lenders were cautious in giving them loans as there was no way to assess their default probability.
TransUnion Cibil’s new scoring model called CreditVision will use an algorithm to continuously monitor behavioural trends of subjects to capture any major shifts in trends, making it easier for lenders to assess their credit risk for such borrowers who are young and not debt averse.
The CreditVision score ranges from 101 to 200 with higher values indicating lower credit risk or reduced probability of default by the borrower. This scoring model will only be provided to credit institutions and banks for credit risk assessment of new to credit consumers, TransUnion Cibil said.
“Over the last two decades, insights and solutions from TransUnion CIBIL have facilitated opening of 8.10 crore loan accounts of first-time borrowers,” TransUnion Cibil said.
An analysis by the company shows that new to credit consumers tend to prove lower risk and build a higher credit score when they are given credit opportunities.
“Score analysis of consumers who were granted credit in Jan 2019 shows that a significant proportion of these consumers were scored as prime-consumers (those with CIBIL TransUnion Score of 700 and above) after a one-year period,” TransUnion Cibil said.
Of the new to credit consumers who were given credit in Jan’19, 72.30% had a TransUnion CIBIL Score of 700+ in Jan’20. Of the ‘below prime’ existing-to-credit consumers (TransUnion CIBIL Score of 300-699) who were given credit in Jan’19, 47.29% had a score of 700+ in Jan’20. For prime customers the ratio is even higher as 85.90% of those who were given credit in Jan’19 had a score 700+ in Jan’20.
Analysis of share of enquiries made by new to credit customers between January 2019 to January 2021 shows that a majority of these customers look for two wheeler loans followed by consumer durable loans and home loans.
“Majority of India’s population is under 40 years of age and this group is most likely to seek their first ever loan or credit card from banks and credit institutions. Our analysis clearly shows that if provided credit opportunities, NTC consumers can prove to be good borrowers and form a profitable customer base for credit institutions,” said Rajesh Kumar, CEO TransUnion Cibil.
On a monthly basis, approximately 24% of enquiries are made for loan applications by individuals who do not have a credit history. A majority of the enquiries come from rural and semi urban areas.