ARTICLE...
Increased Scrutiny of Data Sources
The high pressure environment created by 'The Credit Crunch' is putting additional stress on credit risk teams to minimise their exposure to write-off from their customers.
This has led to lenders tightening their lending strategies for new customers and re-pricing for existing customers.
And, as they try to improve their strategies, the data sources available to the lenders are coming under ever increasing, more intense scrutiny. Internal transactional information provides lenders with daily performance data on their customers. This is usually combined with monthly credit bureau data to build usable behavioural scores for existing customers. These scores allow lenders to assess how they will deal with a customer for the next month.
One piece of information that is missed in this process is whether there are any changes in the performance of the bureau between the updates - and there are several ways this data could have changed, which could then impact upon the scores of a customer.
CCJs, bankruptcies and other public data is provided on a daily basis, whereas lenders that supply their monthly files do not supply them all on the same day. This leads to data arriving throughout the month, meaning the information held by bureaux is constantly changing on a day-to-day basis.
When lenders are evaluating applications for new credit they search a bureau for the applicant's latest information. It is from that snapshot that a decision is made, via credit scoring and company policy. This is a process that should be continued once the customer has been accepted for credit.
Analysis shows - on credit cards and current accounts - there are significant increases in balances on customers who trigger serious alerts such as bankruptcies and CCJs after they have hit an alert, who then go on to write-off.
If these customers were stopped from spending as soon as they hit that first alert, then a very large amount of bad debt could be prevented.
In essence, simple policy rules could be put in place to supplement the monthly behavioural score - or the score could even be adjusted on a daily basis.
Original article, by Mick Ellender (Senior Business Consultant Callcredit), courtesy of CCR. For further information visit www.ccrmagazine.co.uk
