How to smooth the transition to CCR
Comprehensive Credit Reporting (CCR) data will provide lenders with greater insights into customer credit behaviour. This gold mine of insights will improve the predictive power of scorecards, change the market landscape and give agile lenders a significant advantage over competitors.
But, like any business change, preparation is the key. To help smooth this transition process it’s important to have a clear understanding of what to expect and how to prepare.
What to expect
During the transition period, the data will be volatile. This is mainly because of the unknown consequences of lenders loading their data.
For example, CCR fields such as "number of lenders" have been shown to be highly predictive of credit risk. However, this field will be unstable during transition due to the unknown timing of lender participation.
Likewise, it will be challenging to understand the predictive performance of new fields without a sufficient outcome period to validate against.
How to prepare
There are a number of different ways for lenders to tackle these problems.
Start by making sure that current decision rules and scorecards are well documented and have sound performance metrics prior to CCR.
Next, analyse existing decision rules to determine the impact of large volumes of CCR data loads.
Finally, assess the likely predictive performance of new fields using one of the options below:
- Lenders that participated in the Equifax CCR Pilot Study could glean performance indications from the output of the study.
- Lenders with operations in New Zealand, where mandatory CCR reporting is in effect, could draw performance parallels from their New Zealand business.
- Lenders could incorporate a CCR scorecard built by vendors such as Equifax. Equifax Apply was developed based on the data from the CCR Pilot Study, was designed to smooth the volatility caused by data loads during transition, and is regularly validated against the performance of their New Zealand business.
- Utilise underwriters to perform manual CCR reviews for those marginally declined in a negative environment before changing any automated decision rules.
Track ongoing performance
No matter how you prepare, it will be crucial to closely monitor the characteristics and scorecards chosen in automated decision rules during the transition.