Plaid launches LendScore for better credit risk insights

"With lenders ready to explore alternative risk data such as cash flow underwriting Plaid's LendScore aims to build on that shift by leveraging the company's network, which connects 150 million people to more than 7,000 financial apps and services. LendScore uses real-time cash flow data along with other digital financial activity from Plaid's vast network. After a borrower gives permission, Plaid analyzes the data and generates a score between 1 and 99, plus reason codes that explain the score."

"The model is delivered through Plaid Check, the company's consumer reporting agency, ensuring compliance with the Fair Credit Reporting Act and fair lending rules. According to Plaid, early testing showed the score reduced relative credit risk by up to 20% for subprime and near-prime borrowers. This potentially saves lenders more than $1 billion in losses and cuts borrowers' annual interest costs by an estimated $8 billion."

"Traditional scores still matter, but they miss what's happening right now, said Michelle Young, Plaid's credit product lead. LendScore helps lenders see the full financial story. We built LendScore in close partnership with unsecured lenders, which helped shape the attributes we prioritized, the structure of our reason codes, and how we measured model performance, she added. In testing, we generated millions of scores and delivered a 25% lift in predictive performance for lenders, compared to traditional credit data alone."

Buy now, pay later usage and heavier reliance on debit cards have made traditional credit scores less reflective of consumers' current finances. FICO and VantageScore changes are prompting lenders to consider alternative risk data such as cash-flow underwriting. LendScore leverages Plaid's network of 150 million users and over 7,000 connected financial apps to analyze real-time cash flows and digital financial activity after borrower permission. The model produces a 1–99 score with reason codes and is delivered via Plaid Check to comply with FCRA and fair lending rules. Early testing showed up to 20% risk reduction for subprime and near-prime borrowers and a 25% lift in predictive performance versus traditional credit data.

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