U.S. Auto Lenders Rely More on Alternative Credit Reporting

DALLAS – As the U.S. economy shifts to what many believe may be a recession, dealers potentially face more shoppers with poor or no credit histories.

Lena Bourgeois, general manager of Equifax’s automotive division, leads her company’s mission to educate consumers and lenders on the best way to establish positive financial portfolios that lead to car sales.

Wards met her during the 2023 NADA Show to discuss the process. Here is an edited transcript of that conversation.

Wards: Who are your customers in the auto space?

Bourgeois: We serve the entire ecosystem: manufacturers, lenders, dealers, and all the various technology platform connectors. 

Wards: What is the elevator-ride description of Equifax?

Bourgeois: Internally, we say, ”We’re not your grandfather’s credit bureau.”

But we are the oldest of the three credit bureaus. Yet, in recent times, especially in the last five years, we’ve transformed into an information technology company. Our ultimate goal is to help consumers live their financial best.

Wards: Can you improve people’s credit ratings or help them with their finances?

Bourgeois: We work with universities and educational institutions to help with financial literacy. We also work with bank outreach programs.

More so, we’re trying to consider not only people’s traditional credit files but also to realize young people may have less information in their credit files.

Some people have thin files or no files. They’re just not credit-active in the traditional sense. But young people have cell phones, cable TV and utility bills. Some people borrow from alternative credit arms, such as payday lending.     

Wards: This is what is called the alternative credit data?

Bourgeois: Yes. We have spent millions of dollars acquiring access to these data sources to get a more holistic view of your affordability and credit profile so the lenders can say “yes” more often. We try to make sure institutions don’t neglect this consumer base.  

Wards: Do you invest in these alternative sources because so many people have their credit based on those, or does this supplement traditional credit sources?

Bourgeois: Imagine 320 million consumers are on the credit file. This utility exchange we leverage adds another 215 million consumers with incremental transactional information. Alternative payday lending adds another 80 million. Many pay their bills but are not on traditional credit bureau files.   

Wards: What are the traditional factors?

Bourgeois: Credit cards, car loans and mortgages are reported to us by financial institutions. But with the alternative data, a bank can see someone has been paying their cell phone bills for 5 years or their gas bill for 12 years, and they’ve met their financial obligations. So , a bank may look at that and say, “You know what, I’m going to lend this person money to buy a car..”

Wards: That helps lenders, but do car dealers fit in as far as those considerations?

Bourgeois: They do. Dealers don’t make a credit decision on the consumer. But to sell a car, they need to get consumer loans approved by the financial institution. Alternative data will help dealers. Dealers are really holding the business the lenders get. If the lenders do well by them, they’ll get more business. It helps financial institutions, dealers and consumers.    

Wards: You mentioned financial literacy earlier. Presumably, most people are financially literate. But it would seem like a lot of them aren’t. 

Bourgeois: We did a study a few years ago indicating most consumers in the lower credit spectrums are the least financially literate.

Wards: No surprise there.

Bourgeois: Right. Again, we’re doing a lot of outreach to address that. Our partnerships help that sector of people better understand the power that credit has in life and how to manage it. 

Wards: How many people take you up on that offering?

Bourgeois: Right now, we have a few million consumers. We’re looking to grow that. I think everyone realizes managing your finances is essential.

It’s important to educate early on. We partner with universities that put financial literacy in their curriculums.

Wards: But some people still buy cars they really can’t afford.

Bourgeois: Yes. But we’re seeing consumer sentiment become a bit more conservative. We’ll likely see more car consumers skip those bells and whistles when buying a car. Affordability will continue to be a topic of conversation.