Analysis Featured

Checking the Credit of the Subprime Consumer

In the US, there are tens of millions who do not have a reliable FICO score, either because their credit history is not sufficient or it is non-existent. This becomes a vicious cycle and an important reason why subprime borrowers struggle to obtain credit. Traditional lenders are dependent on FICO, and handicapped as they lack qualitative information about subprime borrowers who might otherwise be creditworthy. Clarity Credit Bureau was born with the clear goal to collect subprime data and cater to this population, which is not being served properly by the big three credit bureaus.

Over the years, the company has been able to carve its own niche in the subprime market. Now, lenders and financial institutions are using Clarity for subprime borrowers across the entire credit spectrum, and they are using the bureau in conjunction with other credit bureaus in order evaluate credit applications at a more granular level. This layering of Clarity above traditional data has created value for Clarity clients as they are able to offer credit to a wider client base with the assurance that they are creditworthy.

Extensive Database

Around 200-220 million consumers within the age group of 19 to 65 form the largest part of the credit consumer population in America. About one-third of this nearly 70 million person group are subprime borrowers. Sixty million are covered by Clarity, which is nearly 80% of the entire subprime market. This extensive and elaborate data is what makes the company stand out and be the sought after credit rating agency for subprime borrowers. on average, the entertains anywhere between 400,000 to 800,000 report requests every day.

Clarity does not use FICO data. The company has developed over 30 different report products. They also use the same information as traditional bureaus such as credit history, identity verification, etc. The only difference is that Clarity focuses on data collection for a different population set.

Traditional Bureaus as Laggards

Traditional Bureaus lag behind Clarity Credit Bureau due to the paucity of an adequate mechanism to have access to the subprime borrower data. Typically, financial institutions do not provide financial services to subprime customers without FICO data, and they report to credit bureaus.

But, if a lender client of Clarity requests a report on a customer and extends credit to that customer, the financial service provider submits the performance of the credit line to Clarity. It is structured as a “Give and Get” model, similar to other credit bureaus.

Competitive Edge in the Market

According to the Clarity’s founder, Clarity Credit Bureau is the largest bureau in the subprime credit reporting space. Moreover, it has succeeded in carving its niche as the most innovative player in this segment, and its revenues grew by over 70% from 2014 to 2015.

A Solution for Loan Stacking

Loan stacking is a serious threat in the P2P lending space. Borrowers have managed to take advantage of lenders due to the shortcomings of the alternative lending industry. To fend off loan stacking, lenders have been using a consortium approach for 10 years. This involves a group of lenders getting together and sharing every approved application among the consortium. It’s a temporary fix as information sharing is restricted to the consortium, and if the consumer gets a loan from a non-consortium player like a tribal lender or payday lender, the original lender would not be any wiser.

Keeping this in mind, Clarity has developed a real-time solution: Temporary Account Record, a patent-pending solution that will close the reporting gap from hours to minutes, which helps reduce the risk of underwriting unsecured loans. Everyone who is part of the Clarity family and using this technology will be notified when a lender approves a loan.

Real-Time Technology

In today’s world, where technology changes hands in mere weeks, methods used by the three big rating bureaus are quite off the pace. These bureaus use archiving technology for updating their database. Archiving technology will add new data to an existing database randomly from time to time. The resulting report generated might not be up to date or accurate. Clarity, however, uses real-time technology for reporting where the updated information is gathered and stored in the original format along with the date and timestamp.

Clarity Credit Bureau makes use of MySQL, an open source relational database, and the Bongo database system to capture and leverage big data. It uses an on-premise database architecture, instead of operating on the cloud, with multiple data centers complying with industry standard security and encryption certification. Though this is a costly solution, it is necessary as they deal with extremely sensitive public data.

Company History

Clarity Credit Bureau was founded in 2008 and is headquartered in Clearwater, Florida with the aim to provide unprecedented credit risk solutions to lenders and service providers that deal with nonprime consumers. The company also collects and analyzes multiple data points on the behavior of nonprime consumers, and endeavors to provide customized data-driven solutions to clients to meet their specific needs and circumstances.

Clarity Credit Bureau has over 100 employees and around 600 clients.

Founder and Manpower

Tim Ranney, the President and CEO at Clarity Services, has expertise in the IT sector and large database systems. Prior to the inception of Clarity Credit Bureau, he spent nearly 20 years in Internet security and risk management, serving as chief operating officer of an industry leader and senior executive for both Network Solutions and VeriSign.

Author:

Written by Heena Dhir.

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