Ford, the #2 Automobile Manufacturer in the US by market share, has decided to change its credit and financing approval process to look beyond credit scores in an effort to supercharge sales.
The move by Ford Motor’s financing unit is expected to unfold in coming years, even as concerns mount about rising auto-loan losses in the industry. Ford Motor Credit is expected to announce the plans as soon as Friday.
For years an automobile loan at a major manufacturer has always looked at credit score to grade a borrowers risk. But, the company says it is looking at ways to increase loan and lease approvals for applicants with limited credit histories. Consumers with limited credit history are often denied credit because they haven’t shown a history of managing debt and as a result have low credit scores. Ford’s credit and financing division plans to review new borrower data to determine whether these customers, as well as those with longer borrowing history, are likely to repay their auto loans.
Ford Credit is hoping that looking at different sets of consumer financial data will lead to better ways to assess risk among a broader range of borrowers. Possibly appealing to millennial who are less likely to have a history of debt or debt management. Millenial’s, typically, carry low to no credit cards and by some reports have a better understanding of managing debt by not amassing high level of debt.
Advocates of the lending strategy say borrowers with limited to no credit histories are often unfairly cut out of low cost lending – simply because they have no debt or low debt. Critics who point to this as just another sub prime lending tactic argue that this is a time when auto lenders should actually raise the barrier of entry for auto loans not lower it.