Transforming portfolio management with alternative credit scores

by Carmel Maher

Carmel Maher

Enterprises have begun to see the value in using alternative credit scores as part of their lending decision processes for various use cases – from identifying more creditworthy consumers to discovering marginal consumers with potential for growth. While the use of alternative credit scores for new customer acquisition has grown rapidly in recent years, adoption of these tools for portfolio management has remained low.

With some economists predicting an economic downturn in the coming year, it will be imperative for lenders to identify early signs of distress within their customer base, to help manage risk before it escalates. Could alternative credit scores help lenders identify changes in consumer credit behavior that traditional assessments may miss, or see these changes earlier?

To help answer these questions, ID:A Labs, the research arm of ID Analytics, designed a study to examine the potential benefits of alternative credit scores for portfolio management. Using a traditional credit score and ID Analytics’ alternative credit score (COFS Portfolio), the study analyzed half a million consumers across multiple industries to track score changes over a 13-month period starting from the time of their credit or service application.

For 60% of the consumers in this group, the alternative credit score identified one or more significant changes in credit standing that the traditional credit score may have overlooked.

alternative credit scores capture rates

The study also examined the incremental value alternative credit scores may provide in terms of when the insights are seen—the earlier a lender is able to detect changes in consumer credit behavior, the sooner they can take action to protect against potential losses.

Whether your enterprise wants to tighten lending standards in preparation for an economic downturn or expand relationships with existing customers to drive growth, the additional insights provided by alternative credit scores can help. To learn more read, Change in Management: Examining the potential for alternative credit scores to transform portfolio management.

 

 

Carmel Maher is the Product Marketing Insights Manager for ID Analytics