Fixing A Credit-Data Dearth That’s Hurting Lending More Than COVID-19

The pandemic has cast a chill across the loan process, but Matt Harris, co-founder and CEO of Bloom Credit, told PYMNTS that a lack of credit data and creative alternative solutions might be causing even more lending problems.

Harris said the main headwinds he currently sees are lenders’ inability to understand their customers’ financial plights, as well as a shortage of credit-building products to help people improve credit scores and get out of debt.

He said Bloom Credit is aiming to pitch in by “being able to get those tools in companies’ hands faster, so that they can build the products to empower consumers.” Harris said doing so could help “what is ultimately causing a bigger lending freeze than the pandemic among larger institutions.”

It’s all part of Bloom Credit-Data-as-a-Service (CDaaS) offerings, which Harris said can streamline the complex infrastructure and processes involved in launching a credit product and instead make it simple and easy to use.

“We’ve actually done a lot of the work in terms of getting all of the compliance legwork in place,” Harris said. “When you actually look at what it takes to get a consumer lender off the ground, it can take years” due to compliance needs, integrating with different credit bureaus’ infrastructure and developing loan underwriting models.

He said Chime is a good example of the years of work required to come to market with a new credit product.

Bloom’s aim is to provide guidance, services and tools “so once you’re actually ready to go launch [a new credit] product, what you’re really worrying about is launching product,” Harris said.

One recent example of Bloom’s work that Harris said he was particularly proud of involved TrueAccord’s Engage product. That’s essentially a credit monitoring app that also serves as a data-enabled debt-collection agency by capturing 100 percent of a consumer’s accounts and putting them into one place.

A second offering Bloom launched recently is an Affirm-like credit product for dentists, which Harris said is still in beta testing. It works by helping dental practices use credit data to better understand how to make credit risk decisions. Harris said that can help practices make point-of-sale (POS) payment plans available to patients considering dental procedures they couldn’t otherwise afford.

Addressing Pandemic-Related FICO Concerns

Harris also addressed recent concerns about the reliability of FICO scores in light of pandemic-related temporary loan repayment freezes and agreements.

“The reason why the pandemic messed with the quality of FICO scores is not because FICO is inherently broken,” he said. “It’s because the lenders were no longer incentivized to report on what was happening in a consumer’s financial life.”

He said that’s a problem that cuts in both directions. While millions of consumers given really long forbearance plans are seen by credit bureaus as still paying on time, you can’t actually tell whether someone is making payments or not.

On the flip side, Harris pointed out that FICO scores are getting distorted because lenders are incentivized not to publicly mention whether a consumer is missing payments.

“FICO never actually broke,” he said. “FICO is working just fine. The problem is the incentives on reporting are different. The trick is adding context to how you look at consumers, not just looking at FICO in a vacuum.”

Bloom’s New $13 Million In Funds

Bloom successfully staged a $13 million fundraise this week, and Harris said the company plans to use much of the money to hire engineers, product people and salespeople.

He said the two things the company will focus on will be helping clients launch more extension of credit services and improve “furnishment,” the complex process of reporting data back to the credit bureaus.

“We think furnishment is going to be really big this year,” Harris said. “So, those are the places we’re focusing on — furnishment and hiring.”