A 5-Minute Guide to Cash Flow Underwriting

Cash flow underwriting is gaining traction as lenders look for new strategies to increase approvals and keep up with the changing market while maintaining responsible lending practices. 

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Let’s break down what cash flow underwriting means, why lenders should start thinking about it (if you haven’t already), and how cash flow scores sit alongside traditional credit scores. 

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What is cash flow underwriting?

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Rather than relying solely on a credit score, cash flow underwriting allows lenders to assess the money flowing into and out of a customer’s bank account, with their permission. That includes regular income, essential expenses, and whether key obligations such as rent or loan payments are met on time. 

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The result is a more accurate and complete view of repayment capacity and, ultimately, a sharper, more inclusive way to assess credit risk and inform lending opportunities. 

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This approach can help lenders fill gaps left by traditional scores. For example, borrowers who are new to credit or who have experienced recent income changes may appear riskier than they actually are. 

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Why consider cash flow underwriting?

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Cash flow underwriting surfaces real-world financial behavior that credit bureau data may miss.

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The introduction of open banking is building momentum for cash flow underwriting, making it easier and more possible for lenders to access transaction data that was once locked inside banks. 

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With that access comes the opportunity to:

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• Evaluate borrowers in real-time, based on actual income and spending patterns
• Compete on product quality and customer experience instead of proprietary access to data
• Extend credit to consumers who may lack traditional credit histories but demonstrate strong financial behavior.

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This matters because it turns lending from guesswork into evidence-based decisions: customers get fairer access and terms that reflect their real capacity, while lenders reduce losses, speed up approvals, and compete on service and decision quality.

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Cash flow score or credit score? 

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Credit bureau scores such as FICO or VantageScore provide fast, standardized measures of credit risk. These may be effective for borrowers with long and stable credit histories, but are often based on bureau data that is thin, outdated, or less reflective of a borrower’s current reality. This also excludes borrowers with thin or no credit files.

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Cash flow underwriting adds value where traditional scoring methods may fall short, capturing real-time financial behaviors and patterns of income and expenses. In this way, a cash flow score is able to provide lenders with a forward-looking view of repayment capacity that traditional credit scores alone may not reveal.

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Examples of where cash flow scores can add value:

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• Gig workers and freelancers
  Traditional scores may not capture irregular or project-based income. Transaction data reveals whether inflows are steady enough to support obligations.
  
  
• New-to-credit borrowers
  Young adults or recent immigrants may have little bureau history. Cash flow insights from rent, utilities, and subscriptions can fill that gap.
  
  
• Recently self-employed borrowers
  Someone who just left a salaried role to run a business might look risky on paper. Transaction data can show stable income and expense management.
  
  

In practice, lenders don’t have to choose one approach over the other. A combined strategy can be effective, using bureau scores as a baseline, then layering in cash flow insights for greater accuracy, fairness, and inclusion.

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Transaction data signals to watch out for

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Transaction data can reveal a wide range of insights into borrower behavior. While priorities may vary by lender and portfolio, three signals often considered useful starting points are:

• Income regularity: Do inflows appear steady enough to cover obligations?
  
  
• Essentials burden: How much of income goes toward essentials like rent, groceries, and utilities?
  
  
• Repayment cadence: Are obligations such as loans, credit cards, and rent generally paid on time?
  
  

Taken together, these indicators can help build a more dynamic, real-time view of financial health. They may be particularly helpful when credit history is thin or doesn’t reflect recent circumstances.

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Note: No single set of signals will apply universally. Lenders should test which factors are most predictive within their own portfolios and customer segments.

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A lightweight way to start cash flow underwriting

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Adopting cash flow underwriting doesn’t have to mean redesigning your entire credit model. A small pilot can deliver immediate insight.

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For example:  

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1. Choose a target use case
   E.g. Can we responsibly approve more near-prime borrowers?
   
   
2. Review a sample
   E.g. With applicant consent, analyze transaction data for income, expenses, and payment patterns.
   
   
3. Compare decisions
   E.g. See whether outcomes would have changed with this additional data.
   
   

Even without deploying a new model, this exercise can highlight where cash flow insights might improve your decision-making.

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Want to move faster?

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Carrington Labs’ Cashflow Score turns raw transaction data into decision-ready insights. It integrates seamlessly with existing decisioning systems, providing explainability and compliance from day one.

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Learn how our tools help lenders unlock the full potential of cash flow underwriting in lending.

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