Grocery purchase data can accurately predict credit risk for individuals without traditional credit scores, potentially broadening the pool of qualified loan applicants. Photo via Unsplash

Millions of consumers who apply for a loan to buy a house or car or start a business can’t qualify — even if they’re likely to pay it back. That’s because many lack a key piece of financial information: a credit score.

The problem isn’t just isolated to emerging economies. Exclusion from the financial system is a major issue in the United States, too, where some 45 million adults may be denied access to loans because they don’t have a credit history and are “credit invisible.”

To improve access to loans and peoples’ economic mobility, lenders have started looking into alternative data sources to assess a loan applicant’s risk of defaulting. These include bank account transactions and on-time rental, utility and mobile phone payments.

A new article by Rice Business assistant professor of marketing Jung Youn Lee and colleagues from Notre Dame and Northwestern identifies an even more widespread data source that could broaden the pool of qualified applicants: grocery store receipts.

As metrics for predicting credit risk, the researchers found that the types of food, drinks and other products consumers buy, and how they buy them, are just as good as a traditional credit score.

“There could be privacy concerns when you think about it in practice,” Lee says, “so the consumer should really have the option and be empowered to do it.” One approach could be to let consumers opt in to a lender looking at their grocery data as a second chance at approval rather than automatically enrolling them and offering an opt-out.

To arrive at their findings, the researchers analyzed grocery transaction data from a multinational conglomerate headquartered in a Middle Eastern country that owns a credit card issuer and a large-scale supermarket chain. Many people in the country are unbanked. They merged the supermarket’s loyalty card data and issuer’s credit card spending and payment history numbers, resulting in data on 30,089 consumers from January 2017 to June 2019. About half had a credit score, 81% always paid their credit card bills on time, 12% missed payments periodically, and 7% defaulted.

The researchers first created a model to establish a connection between grocery purchasing behavior and credit risk. They found that people who bought healthy foods like fresh milk, yogurt and fruits and vegetables were more likely to pay their bills on time, while shoppers who purchased cigarettes, energy drinks and canned meat tended to miss payments. This held true for “observationally equivalent” individuals — those with similar income, occupation, employment status and number of dependents. In other words, when two people look demographically identical, the study still finds that they have different credit risks.

People’s grocery-buying behaviors play a factor in their likelihood to pay their bills on time, too. For example, cardholders who consistently paid their credit card bill on time were more likely to shop on the same day of the week, spend similar amounts across months and buy the same brands and product categories.

The researchers then built two credit-scoring predictive algorithms to simulate a lender’s decision of whether or not to approve a credit card applicant. One excludes grocery data inputs, and the other includes them (in addition to standard data). Incorporating grocery data into their decision-making process improved risk assessment of an applicant by a factor of 3.11% to 7.66%.

Furthermore, the lender in the simulation experienced a 1.46% profit increase when the researchers implemented a two-stage decision-making process — first, screening applicants using only standard data, then adding grocery data as an additional layer.

One caveat to these findings, Lee and her colleagues warn, is that the benefit of grocery data falls sharply as traditional credit scores or relationship-specific credit histories become available. This suggests the data could be most helpful for consumers new to credit.

Overall, however, this could be a win-win scenario for both consumers and lenders. “People excluded from the traditional credit system gain access to loans,” Lee says, “and lenders become more profitable by approving more creditworthy people.”

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This article originally ran on Rice Business Wisdom based on research by Rice University's Jung Youn Lee, Joonhyuk Yang (Notre Dame) and Eric Anderson (Northwestern). “Using Grocery Data for Credit Decisions.” Forthcoming in Management Science. 2024: https://doi.org/10.1287/mnsc.2022.02364.


Give credit where credit is due. The Woodlands falls in the "very good" category. Photo courtesy of Local Government Federal Credit Union

Houston suburbs charge ahead with some of the highest credit scores in Texas

fit for fico

Give the residents of The Woodlands some credit. They’re able to brag about achieving some of the highest credit scores in Texas.

A new study from personal finance website WalletHub shows the median credit score of a Woodlands resident is 757. Among the 2,572 U.S. cities covered in the study, The Woodlands nabs a 287th-place tie for cities with the highest median credit score.

FICO, the primary producer of credit scores in the U.S., characterizes 757 as a “very good” credit score. On the FICO scale, credit scores range from 300 to 850. A credit score anywhere from 740 to 799 is above the U.S. average “and demonstrates to lenders that the borrow is very dependable,” according to FICO.

WalletHub based the study on September 2021 data from TransUnion, one of the three major credit-reporting bureaus. In the study, The Villages, a retirement community in Florida, is the only city where the median credit score is above 800 — 806, to be exact.

Two other Houston-area suburbs — Montgomery and Friendswood — ranked among Texas cities for the highest credit scores, coming in with a median credit score of 738 and 732, respectively.

Here are the other cities in the top 15 statewide:

  • Colleyville (Dallas-Fort Worth), 777, 23rd nationally.
  • Flower Mound, 762, tied for 185th place nationally.
  • Coppell (Dallas-Fort Worth), 758, tied for 262nd place nationally.
  • The Woodlands (Houston), 757, tied for 287th nationally.
  • Keller (Dallas-Fort Worth), 756, tied for 300th nationally.
  • Allen (Dallas-Fort Worth), 750, tied for 428th nationally.
  • Georgetown (Austin), 749, tied for 446th nationally.
  • Frisco (Dallas-Fort Worth), 748, tied for 467th nationally.
  • Cedar Park (Austin), 743, tied for 568th nationally.
  • Plano (Dallas-Fort Worth), 740, tied for 629th nationally.
  • Montgomery (Houston), 738, tied for 681st nationally.
  • Friendswood (Houston), 732, tied for 784th nationally.
  • Rockwall (Dallas-Fort Worth), 732, tied for 784th nationally.

Among Texas’ biggest cities, Austin is the only one where the median credit score exceeds 700. In the Capital City, the median score is 713, tied for 1,208th nationally. San Antonio is next in line, at 664 (tied for 2,236th nationally), followed by Houston (662, tied for 2281st nationally), Dallas (661, tied for 2,299th nationally), and Fort Worth (615.5, tied for 2,545th nationally).

Bad news for Sugar Land, which is the only Texas city with a median credit score below 600. According to the study, the median score there is 571, putting it in 2,563rd place nationally. FICO identifies that as a “poor” credit score.

J. Keith Baker, a CPA and certified financial planner who teaches at Dallas College’s North Lake campus in Irving, tells WalletHub that the best way to improve or maintain your credit score is to pay your credit card balances in full every month.

“Some folks will close a credit card account thinking it will help them manage their spending and protect them from identity theft since they are not using an account,” Baker says. “While this may make sense for an individual’s financial situation, do not assume it will automatically improve your credit scores.”

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This article originally ran on CultureMap.

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Houston investment firm names tech exec as new partner

new hire

Houston tech executive Robert Kester has joined Houston-based Veriten, an energy-focused research, investment and strategy firm, as technology and innovation partner.

Kester most recently served as chief technology officer for emissions solutions at Honeywell Process Solutions, where he worked for five years. Honeywell International acquired Houston-based oil and gas technology company Rebellion Photonics, where Kester was co-founder and CEO, in 2019.

Honeywell Process Solutions shares offices in Houston with the global headquarters of Honeywell Performance Materials and Technologies. Honeywell, a Fortune 100 conglomerate, employs more than 850 people in Houston.

“We are thrilled to welcome Robert to the Veriten team,” founder and CEO Maynard Holt said in a statement, “and are confident that his technical expertise and skills will make a big contribution to Veriten’s partner and investor community. He will [oversee] every aspect of what we do, with the use case for AI in energy high on the 2025 priority list.”

Kester earned a doctoral degree in bioengineering from Rice University, a master’s degree in optical sciences from the University of Arizona and a bachelor’s degree in laser optical engineering technology from the Oregon Institute of Technology. He holds 25 patents and has more than 25 patents pending.

Veriten celebrated its third anniversary on January 10, the day that the hiring of Kester was announced. The startup launched with seven employees.

“With the addition of Dr. Kester, we are a 26-person team and are as enthusiastic as ever about improving the energy dialogue and researching the future paths for energy,” Holt added.

Kester spoke on the Houston Innovators Podcast in 2021. Listen here

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SpaceX loses mega rocket in latest thrilling Starship test flight

Testing

SpaceX launched its Starship rocket on its latest test flight Thursday, but the spacecraft was destroyed following a thrilling booster catch back at the pad.

Elon Musk’s company said Starship broke apart — what it called a “rapid unscheduled disassembly." The spacecraft's six engines appeared to shut down one by one during ascent, with contact lost just 8 1/2 minutes into the flight.

The spacecraft — a new and upgraded model making its debut — was supposed to soar across the Gulf of Mexico from Texas on a near loop around the world similar to previous test flights. SpaceX had packed it with 10 dummy satellites for practice at releasing them.

A minute before the loss, SpaceX used the launch tower's giant mechanical arms to catch the returning booster, a feat achieved only once before. The descending booster hovered over the launch pad before being gripped by the pair of arms dubbed chopsticks.

The thrill of the catch quickly turned into disappointment for not only the company, but the crowds gathered along the southern tip of Texas.

“It was great to see a booster come down, but we are obviously bummed out about [the] ship,” said SpaceX spokesman Dan Huot. “It’s a flight test. It’s an experimental vehicle," he stressed.

The last data received from the spacecraft indicated an altitude of 90 miles and a velocity of 13,245 mph.

Musk said a preliminary analysis suggests leaking fuel may have built up pressure in a cavity above the engine firewall. Fire suppression will be added to the area, with increased venting and double-checking for leaks, he said via X.

The 400-foot rocket had thundered away in late afternoon from Boca Chica Beach near the Mexican border. The late hour ensured a daylight entry halfway around the world in the Indian Ocean. But the shiny retro-looking spacecraft never got nearly that far.

SpaceX had made improvements to the spacecraft for the latest demo and added a fleet of satellite mockups. The test satellites were the same size as SpaceX’s Starlink internet satellites and, like the spacecraft, were meant to be destroyed upon entry.

Musk plans to launch actual Starlinks on Starships before moving on to other satellites and, eventually, crews.

It was the seventh test flight for the world’s biggest and most powerful rocket. NASA has reserved a pair of Starships to land astronauts on the moon later this decade. Musk’s goal is Mars.

Hours earlier in Florida, another billionaire’s rocket company — Jeff Bezos’ Blue Origin — launched the newest supersized rocket, New Glenn. The rocket reached orbit on its first flight, successfully placing an experimental satellite thousands of miles above Earth. But the first-stage booster was destroyed, missing its targeted landing on a floating platform in the Atlantic.