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How Factor Trust is Setting a New Standard for Alternative Credit Scoring

alternative credit scoring

The big three credit bureaus in the United States are Equifax, TransUnion and Experian. Though there are many smaller and regional players, the big three have a stranglehold on the market. However,  the alternative lending revolution has given an opportunity to smaller, nimbler competitors to offer products for the nascent-but-growing fintech industry. Factor Trust is one of the players looking to create a niche by providing alternative credit data, analytics, and risk scoring information.

Factor Trust, headquartered in Atlanta, Georgia, opened its doors in 2006. Its latest round of funding ended in November 2015, and the company managed to raise $42 million from ABS Capital Partners and MissionOG. CEO and Co-Founder Greg Rable held many high profile positions in companies like PGi and Empagio before embarking on his entrepreneurial voyage, etc. President and Co-Founder Michael Heller served as president of Argus Information and Advisory Services.

Factor Trust has a team of 60 on board. The company has enjoyed rampant growth in last 3-4 years.

What started as a small alternative credit bureau quickly turned into the largest alternative customer tradeline data provider. Factor Trust covers most of the major loan markets including short-term lending, installment lending, nonprime auto, POS finance, and credit cards.

130 million U.S. adults have a FICO score lower than 700, which is why Factor Trust concentrates on the non-prime credit segment. This segment is generally underbanked.  Factor Trust calls them “Credit Climbers” because they are struggling to improve their credit scores.

Factor Trust’s biggest USP is its proprietary database, which has allowed the company to established itself as an alternative credit bureau. Most of the established players in the market focus on repackaging and reselling third-party products, but Factor Trust focuses on in-house solutions. The strategy has been successful as the company has consistently added half a million users per month.

Every new application or inquiry is treated as a new consumer without performance data. Once an application is accepted, performance data supporting the application is then collected. Factor Trust’s data comprises of application and tradeline information, and, with the help of these data, the company is able to get comprehensive knowledge about consumer spending patterns and the types of products these consumers use. Other important information like stability, payment history, and income stream provide additional insight into financial habits of consumers.

The product range is similar to what traditional credit bureaus like Equifax or TransUnion offer, but Factor Trust serves consumers at or below prime whereas other bureaus serve consumers at or above prime. Cross-over lenders in the auto and credit card industries use traditional rating bureaus in addition to Factor Trust while lenders like Installment, POS, and short-term lenders don’t use traditional ratings at all. This highlights that the company is chasing a massive market that is growing rapidly.

Factor Trust continues to develop its products to stay in tune with the regulatory developments and technological changes in the FinTech ecosystem. Expected CFPB regulations in the coming year will make it compulsory for the lenders to determine the borrower’s ability to repay (ATR) before they can provide borrowers with a loan. In order to help lenders meet ATR regulations efficiently, Factor Trust has introduced the Flexible Technology platform. Lenders can quickly compare residual income to the requested loan amount to determine whether a consumer has the ability to pay back a loan. This product will help lenders keep tabs on the factors that trigger a change in a consumer’s credit situation and alter a credit line accordingly. Saving lenders from the hassle of sending multiple file formats to different bureaus, Factor Trust has also developed a CRA gateway, which is executed based on CFPB regulations. This will allow lenders to automatically update all credit bureaus rather than wasting resources on dealing individually with those bureaus.

Factor Trust uses a flexible pricing schedule. Pricing depends on product demand within a particular region. Higher the demand, lower the price, and vice-versa. On average, the company charges a fee of $1-$1.30 per score and can adjust pricing as it does not use third parties to fetch data. Factor Trust has a dedicated team of experts to make onboarding hassle-free. This allows companies to go live in just two weeks. There is no setup or minimum monthly fee. Along with setup, Factor Trust provides scores and purpose built-in different vertical and segments, which no other alternative bureau provides.

The reason Factor Trust is the preferred choice for the alternate lending industry is because it can pull data through its ATR product and also through traditional data from Equifax, presenting lenders with the best of both of worlds. One telling difference between Factor Trust and other bureaus is the updating of reporting data. In Factor Trust, data is accessed and processed in real time whereas other bureaus update performance statuses monthly. This also allows lenders to ensure that borrowers are not attempting loan stacking. With the emergence innovative technologies and short-terms loan products, the technology used a few years ago is obsolete. Therefore, solutions offered by Factor Trust should become the new industry standard in a few years.


lauren twardy
Lauren Twardy


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