Can Academic Data Ace The Credit History Conundrum?

The Catch-22 is a familiar part of the early life of many consumers looking to get credit for the first time. They can’t secure underwriting because their financial file reveals no credit history, and they can’t establish any credit history because no one wants to underwrite them.

There are solutions — low limit “toy cards” that keep new customers on a very short financial leash of a few hundred dollars, securitized cards that required an initial deposit, high-interest personal loans — but they tend to be expensive and limited.

Moreover, it isn’t an insignificant number of customers who find themselves falling into this predicament, MeasureOne CEO Elan Amir told PYMNTS in a recent conversation. The cohort of college students and those five years or so out from graduation is roughly 30 million people — all of whom are falling into the short credit history/limited work history hole that is locking them out of access.

Access, he noted, that they need because in many cases they need to secure credit to do things like rent an apartment, or take out a credit card or secure an auto loan.  What those consumers — and the businesses that could potentially be serving them — need is a way to evaluate their actual risk level in the absence of the standard data that informs a traditional FICO score. Luckily, he noted, just such a font of data happens to exist for almost every member of that cohort.

“This is a massively underserved market, and what they all have in common is that they all have generated academic data of some kind — 70 percent of them have a college degree and 21 percent have advanced degrees so you have a very rich data set that could be used to provide insight into the cohort,” Amir explained.

What MeasureOne was created to do, he noted is create a proprietary technology platform to  gather that set of academic data — which includes most of the standard items found on a transcript like grades, courses, credit systems and speed of graduation — interpret it and then offer it up to businesses that want to factor academic data into their application process.

How It Works — And Why It’s Needed

MeasureOne started out testing a hypothesis: That academic performance data, interpreted and ranked appropriately, could offer insights into future performance in many ways. Long years of testing by their data science team bore that out — though just how they rank and balance that data to track future performance set is proprietary.

“But what we found in the big picture — and we don’t think this is a terribly counterintuitive finding  — is that the way someone performs in their academic life turns out to be a very good predictor of how the will quantitatively perform from a credit risk standpoint in the future.”

To help flush that out for the businesses they contract with for access to the academic data application programming interface (API), MeasureOne offers what it calls its MeritScore which runs the data through its predictive analytics engine to generate a FICO-like score that ranges from 300 to 850.

“We see this used by lenders who want to provide underwriting services for this segment that FICO is not very descriptive about.”

That data, he notes, allows lenders to make better-informed risk management decisions that also happen to be more inclusive. What their partners tend to see by plugging this data scoring system into their online application funnel is that they can approve as much as 20 percent more loans from borrowers in this cohort – without seeing any significant change to their default rates.

The millennial customer wins because they have an opportunity to access the credit resources they need,  while the lender wins because they aren’t turning away good business. Also, while lending and educational are the two verticals where MeasureOne is starting in offering its services, he believes the opportunity will only grow, particularly as gaining access to academic data becomes easier.

The Path Forward

The main challenge in using academic data for predictive purposes in the past, Amir said, has been in actually accessing the data. In a situation somewhat like what the world of banking looked like a little over a decade ago, academic institutions aren’t excited about sharing access to transcript data — unless it’s within their organization.

However, that, as happened in banking, is breaking down. Their digitally native customers — i.e., college students and recent graduates — are catching on to the fact that the data is theirs, and they are increasingly demanding digital access and control of it. Control, he noted, that MeasureOne leaves with the customer. To access the transcript data as part of an online application, the applicant must first approve MeasureOne (or the app it is working behind) for access to it.

Consumers are granting that access, he noted, because ultimately it is helping them enjoy a better experience seeking credit. Moreover, though financial services is the natural starting point for what MeasureOne can do with academic data, it will not be the stopping point. Marketing, the insurance industry, real estate and even human resource departments could all make use of the data insights that MeasureOne believes it can glean from academic data.

“I think as access increases to the data, we are going to see that younger customers aren’t this mystery that can’t be figured out because there’s no data. We are going to realize the data has been here all along; someone just had to look in the right place and draw the right connections.”