Implementing credit strategies during the transition to CCR
The availability of additional data from Comprehensive Credit Reporting (CCR) provides new challenges for lenders. With limited historical performance data, lenders are faced with potential uncertainty from the performance of various CCR characteristics when applied to their portfolios.
There are a number of ways that lenders can lessen potential uncertainty by using combinations of "test and learn" and/or "champion-challenger" methodologies in combination with the proven performance and stability of Equifax CCR scores.
One proven and successful technique used by lenders during the transition to CCR has been to increase the proportion of loans that are referred for credit assessment by including "swap set" credit applications. Swap sets occur when there is a difference between two or more predictive variables, such as a negative score and a positive score. By having these applications referred for manual credit assessment, the lender can better understand the reason for the difference and determine the optimal score and strategy combination.
Over time, the refer decisions can be automated to become approve or decline decisions based on a better understanding of the expected performance of the scores. In order to mitigate the potential risk, a series of champion-challenger strategies can be deployed and performance monitored.
The strategy comes at a cost with a temporary increase in the number of manual credit assessment staff, however, lenders that have deployed these strategies have found that the long term value far outweighs the short term cost.
If you would like to learn more about how you can implement these strategies in your transition to CCR, please email [email protected].
Disclaimer: The information contained in this article is general in nature and does not take into account any strategic objectives, financial situation or needs of lenders. Therefore, lenders should consider whether the information is appropriate before acting on it, and where appropriate, seek professional legal or financial advice.