As one would guess, the very definition of “thin-file” means that there is not a lot of information available to completely understand a consumer’s demographic and related risk. In many cases, the lack of a credit file – those individuals that have never had a loan or even a line of credit assigned to them – is a factor in why they would have a “thin-file”.
For most people, a credit history starts with credit cards, student loans, or car loans. Many, if not most Americans, will establish a line of credit with a bank early on in their lives to pay for college, a car, a house, or just having a credit card. Establishing risk associated with an individual without these earmarks of credit history can be incredibly difficult.
People with thin files may have little to no history of using credit cards, loans, and no payment histories to examine.
Young People – Young adults often have no way to prove their risk factor for gaining access to the credit markets because they have not been the benefactor of any measurable financial risk. Most individuals do not start building a credit history until they are 18 or older. Young people are often first starting their credit histories and this can be a challenge for potential creditors.
Those with thin files often include individuals who are new to the country. For this group, they may have acted as the head of household or even been responsible for other means of credit in a different country. In the United States however, it can be very difficult to establish a pattern of borrowing and history as our credit system is strictly US based.
Other groups include those who have deliberately avoided credit cards and loans, those who have paid cash for most transactions, widows/widowers whose spouses established credit, divorcees whose spouses established credit, and lower-income consumers.
Ignoring the very large population of people with thin files would mean missing out on millions in potential revenue. This population is considered “under-served” in the banking and credit markets. However, a lack of a credit file does not necessarily indicate a high-risk individual, although certainly you should evaluate each circumstance carefully. There are roughly 70-80 million people with a total income of over $1 trillion who are considered to have thin files. If companies ignore their business, they are shutting down the possibility of serving many, many new customers who may not pose as much risk as they appear.
To minimize the risk associated with the thin file market, organizations turn to solutions that fall outside of the credit spectrum such as dynamic identity proofing. Unlike traditional forms of verification which is often based on credit information, consumers with “thin files” can be verified through dynamic Knowledge Based Authentication (KBA). KBA can come in multiple forms, but essentially refers to systems that verify that the person is who they claim to be – typically in a customer-not-present environment. KBA systems are often a series of generated, multiple choice questions, which will require that the individual is familiar with their own personal information and “public information.”
Some KBA solutions rely on credit-based information which is difficult, if not impossible for a thin-file individual to complete. By accessing a wide range of data sources, organizations benefit from higher locate rates and the ability to provide factual-based questions for verification.
These “on the fly” questions are very effective in driving revenue while also mitigating risk. Companies and creditors can even tailor these questions to fit their needs. Using KBA, along with a layered approach to identity verification, is cost effective and will ensure that companies are not missing out on this untapped market.
Written by Britni Zandbergen, Senior Director of Marketing at Idology. Britni has years of experience in identity management as well as dynamic SaaS solutions.