Missed Payments Can Mean Big Credit Score Drops – Here's How You Can Help

There’s a growing focus on how the impact of late payments can hurt consumers.

Recently, there have been a number of high-profile articles in the financial press about the oversized negative impact a single late payment can have on a consumer’s credit score. To be clear, even though late payments don’t show up on credit reports until 30 days past due, they will have significant impact when they reach that point.

There are a lot of potential reasons why a consumer could miss a payment date.

Life throws nasty curveballs at all of us from time to time. No one is immune. It could have been a big one-time expense. Maybe different expenses had to be given priority. Or perhaps the due date simply slipped away from an otherwise well-intentioned consumer. Regardless of the reason, the potential negative impact of the missed payment is the same: a credit score drop.

The long-term negative impact of missed payments can sneak up on people.

Even someone with an otherwise perfectly clean credit history could be whacked by a one-time credit-score drop of 100 points or more. Missed payments are particularly important because payment history is the single most-prominent element of a credit score, representing at least 35% of it. And furthermore, the impact is long-term, taking around seven years to repair the damage of a missed payment.

This situation presents an opportunity for FIs to play a positive role.

Precisely because late payments can have a big credit score impact, it’s a perfect time for FIs to take proactive steps to protect their borrowers. FIs armed with alternative data and sophisticated AI-powered analytics can identify borrowers at risk of missed payments and potentially work with them to avoid these occurrences.

Alternative data and the related analytic power can help FIs compile a much fuller and more complete picture of their borrowers. When you have a more accurate picture of their financial world, you can talk to them confidently, work with them, and advise them more accurately. Even if borrowers have had a credit score drop related to missed payments, alternative data analysis could lead you to have the confidence to approve a new loan so they can start to rebuild their credit score.

Alternative data analysis means you can examine real-life financial factors more closely.

In particular, you can dig into areas that are overlooked by traditional credit reports. Alternative data analysis allows you to consider things like employment information and bank statement data.

This gives you visibility into the job history of borrowers and whether they have predictable income streams. If they pay rent, do they pay it on time? Are they current with payments to utilities, cell phone carriers, streaming service fees, and other recurring monthly bills?

Alternative data analysis opens the door to multiple positive consumer outcomes.

In particular, think what alternative data analysis could mean to consumers who have thin traditional credit scores or perhaps no credit score at all. This is where Lokyata’s technology shows its real value.

Our AI-powered analytic technology leverages real-time alternative data analysis to develop more accurate pictures of borrowers’ general financial health. It also means you won’t have to rely so heavily on traditional credit scores.

Your FI will be in a position to offer financially sound, affordable loans to more borrowers and do it more efficiently than you could before. In fact, Lokyata can help you and your borrowers in at least four ways.

1. Grow your loan portfolio with no significant increase in credit risk.
2. Save time and money from back-office efficiencies, fewer loan defaults, and fewer high-risk credit reviews.
3. Extend affordable loans to more borrowers.
4. Strengthen the financial health and wellbeing of more individuals and families.

Register for a Lokyata demonstration today.

The best way understand how Lokyata’s technology performs is to see for yourself how it could work for you and your institution.

In the meantime, if you’d like more information about Lokyata, visit www.lokyata.com or email Steve Bireley at steve@lokyata.com