The importance of accurate credit scoring models cannot be understated as lenders work to increase their lending portfolios while mitigating risk exposures.
VantageScore Executive Vice President and Chief Data Scientist Andrada Pacheco and Chief Strategy Officer and Chief Economist Rikard Bandebo addressed shifting trends in consumer credit and how advancements in their company’s model will help lenders while speaking at a session at the Consumer Bankers Association’s annual conference in Orlando.
They said the company’s new credit scoring model, VantageScore 5.0, is designed to account for the “new normal” in consumer lending. The new model works by using trending data to understand consumer behavior over time, offering lenders a snapshot of a consumer’s credit habits beyond their credit file.
“The consumer lending space is not what it used to be,” Pacheco said. “We will never return to a pre-pandemic or a pandemic environment. We have to be moving toward the future of lending. We’ve been listening to our customers - regulators, industry experts, lenders – and they’ve been telling us there is a need for a new credit risk model to account for this ‘new normal’ that the consumer lending space is in, and we listened.”
It creates predictive models at the account level and aggregates them to the consumer level, using new attributes as inputs.
“We’ve been studying delinquencies, balances, originations and other economic data to get a good understanding of what is going on in consumer credit health,” Bandebo said. “Coming into 2025, one of the clearest things that we could see is the economy is being driven in two directions by those who are thriving and by those in struggle. What that means is lenders really need to understand who these different groups are, how their consumers fall into these two categories, how their prospective customers fall into these categories, and how the trends in these categories align.”
The executives characterized the current economy as having dual directions, driven by groups of consumers who are thriving and others who are struggling to make ends meet. Interestingly, they have found that delinquencies among high-income earners (those making more than $150,000 annually) have increased much faster than among low-income earners. Bandebo offered some insight into this phenomenon.
“I’m not raising alarm bells. It’s just that the rate of increase for the higher-income groups is much higher than the lower-income groups,” he said. “We know that this is a group that has a tendency more towards white-collar workers. It’s not the best market right now for white-collar work. It’s harder to find new jobs in white-collar work.”
Bandebo cited Federal Reserve data indicating a significant portion of the credit card market was making only minimum payments at the same time another substantial portion was making much greater than normal payments.
“If you just look at topline employment rates, inflation averages, wage averages, etc., you’re missing what’s going on underneath within the differing populations. You need to dig deeper to better be able to understand who is thriving and who is struggling and how those populations are diverging,” he said.
According to the Department of Education (DOE), student loan delinquencies are negatively impacting approximately 9.2 million borrowers, 43 percent more compared with October 2024, before the DOE stopped delaying delinquencies. Auto loans are another major source of delinquencies causing credit availability problems for some borrowers. These high rates have also come during a time of rising rents and relatively high interest rates, which has not helped matters.
“We are facing all these challenges at a macroeconomic level such as inflation and high interest rates,” Pacheco said. “The new model is going to work in the new normal. We are looking for ways to increase lendable population without increasing your underlying risk.”
The company provided approximately 42 billion credit scores in 2024 – an increase of 55 percent from the previous year. The goal of its new VantageScore 5.0 is to improve predictive loan performance capabilities, stability in its scoring process and to expand the population of qualified borrowers. It is testing the new model through pilot programs underway in select communities to determine its effectiveness and make necessary adjustments.
VantageScore 5.0 is the fifth scoring model launched by the company since it formed in 2006 through a joint venture between the three national credit reporting agencies: Experian, TransUnion and Equifax.