Underwriting & credit
Cash-Flow Underwriting: Definition & Example
What Is Cash-Flow Underwriting?
Cash-flow underwriting is evaluating an applicant using income, spending, and balance patterns from their bank account data, often alongside or instead of a traditional credit report.
What does cash-flow underwriting mean?
Traditional underwriting leans heavily on credit bureau data, which says little about people with thin or no credit files. Cash-flow underwriting looks at bank transactions, with the consumer’s permission, to see how much money comes in, how regularly, how bills are paid, and whether the account overdraws.
Common cash-flow attributes include average monthly deposits, income regularity, average daily balance, number of overdrafts or NSF events, and the ratio of spending to income.
Regulators including the CFPB have discussed cash-flow data as a way to expand access to credit, while noting that it must be used accurately and fairly. The consumer usually connects their account through an open banking data provider.
Cash-flow underwriting example
A lender reviews a small loan applicant with a 590 credit score from a medical collection. Twelve months of connected bank data show steady biweekly payroll deposits, no overdrafts, and an average daily balance of $2,300. The lender approves a smaller loan under its cash-flow program.
Related terms
- Alternative DataAlternative data is information used to evaluate applicants that is not in a traditional credit report, such as bank account cash flow, rent and utility payments, and employment or education records.
- Open BankingOpen banking is the practice of letting consumers securely share their bank account data, such as balances and transactions, with third-party apps and services they choose, usually through APIs.
- Cash FlowCash flow is the movement of money into and out of an account, household, business, or property over a period. Positive cash flow means more money came in than went out.
- Thin Credit FileA thin credit file is a credit report with too few accounts or too little history to generate a reliable credit score. People with no credit record at all are called credit invisible.
- Bank Statement AnalysisBank statement analysis is reviewing a person’s or business’s bank transactions to estimate income, spot recurring expenses, check balances, and flag risks such as overdrafts or unusual deposits.
