Ford to Look Beyond Credit Scores to Boost Sales
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What is the main topic discussed in this episode?
This is Your Money Matters from The Wall Street Journal.
Welcome to Your Money Matters. I'm Charlie Turner in New York. If you've bought a car and worked out loan details with a dealer, you probably know that your credit score figured into whether you were deemed creditworthy. Well, Ford has announced that it wants to look beyond a buyer's credit score when deciding whether to approve a customer's financing. It's part of an effort to boost sales. Joining us is The Wall Street Journal's Anna Maria Andriotis. Anna Maria, is Ford taking this approach to reach more people with limited credit histories?
Correct. So one of the strategies that Ford has decided to pursue is to look at people who have limited credit histories and find ways to approve them. Now, because these people have these limited credit files, what it basically means is that they have low credit scores, oftentimes when there's a very little history showing that consumers can manage debt.
How is Ford changing its loan approval process to look beyond credit scores?
they end up having these low scores that results in them getting rejected for loans. So what Ford is saying is that, look, we are going to continue looking at credit reports and credit scores and all of the other sort of strategies we were previously using, but we are going to add additional data in the mix and something that we believe would help people with limited credit histories to get approved.
And the purpose of this is to increase the number of loan and lease approvals because I guess sales have been falling not just for Ford but other automakers too.
So that is correct. So industry-wide, sales have been falling. U.S. new car sales are down during the seven months of this year, the first seven months of this year compared yesterday. the same period last year. For Ford, U.S. sales are down by more than the industry average during this period. So there's a couple things in play here. Of course, this decision is coming out of Ford's financing unit, Ford Motor Credit. And so this company, of course, like any captive finance arm, its primary job is to get people into loans to help with Ford car sales. So one sort of main strategy here that the financing unit is looking at is how do we as a company increase loan approvals? Now, in speaking with one of the company's executives, he was clear that what they're trying to do here is essentially strike a balance between approving more people without taking on more risk.
And, of course, that's where things get complicated because that's a difficult balance to strike.
Anna Maria, are there any hints as to what data, besides credit scores, that Ford Credit will use to decide whether to approve a loan applicant?
So there's a couple possible scenarios of data that they will be considering to look at. So some of the examples shared with me were, so people, when they apply for loans, will generally provide a cell phone number. Have those individuals been providing the same cell phone number
Why is Ford targeting people with limited credit histories to boost sales?
on previous loan applications. If they are, that suggests that there is somewhat of a stability there. They're paying their phone bills, which is why they are likely providing the same number, but they're also not constantly changing numbers. That could be an indicator of stability. A second example, possible example, would be looking at their occupations, specifically occupational licenses. For example, are they an electrician? Are they a plumber? In the medical field, are they a nurse?
What additional data points might Ford Credit use besides credit scores?
things that would suggest job stability. Also possibly looking at things like voter registration, which would also suggest stability, especially with not moving around much. So these are some examples that are not reflected in credit scores that the lender is considering looking at here to approve people with limited credit histories. Now, to be clear, the lender has also said that While this strategy could help to increase approval for this group of people, it will be using additional data, this type of additional data, to also make decisions about people with existing credit histories, regular sort of borrowers out there who do have credit reports and who do have credit scores.
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Chapters
5 chapters
1
What is the main topic discussed in this episode?
0:02–0:59
2
How is Ford changing its loan approval process to look beyond credit scores?
0:59–3:04
3
Why is Ford targeting people with limited credit histories to boost sales?
3:04–3:33
4
What additional data points might Ford Credit use besides credit scores?
3:33–6:32
5
How will these new data signals indicate borrower stability?
6:32–7:19
Speakers
2 identifiedMore from WSJ Your Money Briefing
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