By: Staci Baker
As the economy has been hit by the hardest recession since the Great Depression, many people wonder how and when it will recover. And, once we start to see recovery, will consumer credit return to what it once was?
In a recent Experian-Oliver Wyman Market Intelligence Report quarterly webinar, 70% of the respondents in a survey said they believe consumer debt will return to pre-2008 levels. Clearly, many believe that consumer spending and borrowing will return, despite the fact that consumer credit card borrowing recently declined for the 24th straight month*.
Assuming that this optimism is valid, what can credit card lenders do to evaluate the risk levels of potential customers as they attempt to grow their portfolios?
For lenders, determining who needs credit, as well as whom to lend to in this economic environment, can be quite challenging. However, there are many tools available to assist lenders in assessing credit risk and growing their portfolio.
Many lenders look at a consumer’s credit score, such as the tri-bureau VantageScore, to evaluate their credit worthiness. By utilizing an individual’s VantageScore, a lender is able to determine potential customer risk levels.
Another way to evaluate a consumer’s credit worthiness is to evaluate a population using credit attributes. Based on the attributes a lender is looking for in their portfolio, they can see improvement in evaluating risk prediction in their portfolio using pre-determined attributes, especially those specifically designed for the credit card industry.
There are also models that can help lenders predict when a consumer is likely to be in the market for a new loan or account. Experian’s In the Market Models provide lenders with product-specific segmentation tools that can be combined with risk scores to enhance the efficiency and effectiveness of their offers.
To identify the optimal cross-sell and line management decisions based on an individual customer’s risk score and potential value, a lender can also utilize optimization tools. Optimization, combined with a viable risk management strategy, can assist a lender to achieve a healthy portfolio growth in a highly constrained environment.
Although lenders will need to determine the best method to meet their objectives, these are just a few of the many tools available that will assist them in correctly growing their lending portfolios.
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* http://www.usatoday.com/money/economy/2010-10-07-consumer-credit_N.htm
