Tag: bankruptcy

The economy is accelerating at a sluggish pace, and world headlines cause business leaders to swing between optimism and pessimism daily. Risk managers must look more closely and much more frequently at their customers' behavior to stay ahead of emerging credit problems. Some tips: Use all customer information when making decisions. Combining both internal and external data can paint a clearer picture of your customers. Identify the customer relationships that have value and should be retained. Apply resources accordingly. Implement daily triggers so you have the latest customer information around bankruptcy, repossession or loan delinquency, as well as positive information such as payments made to other financial institutions. Spend more time examining consumers who are delinquent on their home mortgage payments to determine their behavior on your portfolio. Use next-generation collections software to keep collectors up to date on account-level strategies. Download our white paper on how changes in the economy have impacted consumer credit behavior and what risk managers should analyze in order to determine portfolio strategies. Source: Experian News

Last month, I wrote about seeking ways to ensure growth without increasing risk.  This month, I’ll present a few approaches that use multiple scores to give a more complete view into a consumer’s true profile. Let’s start with bankruptcy scores. You use a risk score to capture traditional risk, but bankruptcy behavior is significantly different from a consumer profile perspective. We’ve seen a tremendous amount of bankruptcy activity in the market. Despite the fact that filings were slightly lower than 2010 volume, bankruptcies remain a serious threat with over 1.3 million consumer filings in 2011; a number that is projected for 2012.  Factoring in a bankruptcy score over a traditional risk score, allows better visibility into consumers who may be “balance loading”, but not necessarily going delinquent, on their accounts. By looking at both aspects of risk, layering scores can identify consumers who may look good from a traditional credit score, but are poised to file bankruptcy. This way, a lender can keep their approval rates up and lower risk of overall dollar losses. Layering scores can be used in other areas of the customer life cycle as well. For example, as new lending starts to heat up in markets like Auto and Bankcard, adding a next generation response score to a risk score in your prospecting campaigns, can translate into a very clear definition of the population you want to target. By combining a prospecting score with a risk score to find credit worthy consumers who are most likely to open, you help mitigate the traditional inverse relationship between open rates and credit worthiness. Target the population that is worth your precious prospecting resources. Next time, we’ll look at other analytics that help complete our view of consumer risk. In the meantime, let me know what scoring topics are on your mind.

By: Kari Michel As consumers and businesses continue to experience financial hardship, the likelihood of continued bankruptcy filings is fairly strong. Data from the Administrative Office of the U.S. Courts show there were 1,222,589 filings through September, versus 1,100,035 in the first nine months of 2009. According to American Bankruptcy Institute executive director Samuel J. Gerdano, "As the economy looks to climb out of the recent recession, businesses and consumers continue to file for bankruptcy to regain their financial footing. With unemployment hovering near 10% and access to credit remaining tight, total filings in 2010 will likely exceed 1.6 million." Given the bankruptcy trends, what can lenders do to protect themselves from acquiring consumers that are at risk for filing for bankruptcy? Bankruptcy scores are available, such as Bankruptcy PLUS, and are developed to accurately identify characteristics specific to a consumer filing for bankruptcy. Bankruptcy scores are typically used in conjunction with risk scores to set effective acquisition strategies. _________________ Source:  http://www.collectionscreditrisk.com/news/bankruptcy-filings-up-3003998-1.html  

By: Kari Michel The U.S. government and mortgage lenders have developed various loan modification programs to help homeowners better manage their mortgage debt so that they can meet their monthly payment obligations. Given these new programs, what is the impact to the consumer’s score? Do consumer scores drop more if they work with their lenders to get their mortgage loan restructured or if they file for bankruptcy? The finding from a study conducted by VantageScore® Solutions* reveals that a delinquency on a mortgage has a greater impact on the consumer’s score than a loan modification. Bankruptcy, short sale, and foreclosure have the greatest impact to a score. A bankruptcy or poor bankruptcy score can negatively impact a consumer for a minimum of seven years with a potential score decrease of 365 points. However, with a loan modification, consumers can rehabilitate their scores to an acceptable risk level within nine months.  This depends on them bringing all their delinquent accounts to current status. Loan modifications have little impact on their consumer credit score and the influence on their score can range from a 20 point decrease to an increase of 30 points. Lenders should proactively seek out a mortgage loan modification before consumers experience severe delinquency in their credit files and credit score trends. The restructured mortgage should provide sufficient cash availability to remain with the consumer.  This ensures that any other delinquent debts can be updated to current status. Whenever possible, bankruptcy should be avoided because it has the greatest consequences for the lender and the consumer. *For more detailed information on this study, Credit Scoring and Mortgage Modifications: What lenders need to know, please click on this link to access an archived file of a recent webinar:  http://register.sourcemediaconferences.com/click/clickReg.cfm?URLID=5258

By: Kari Michel In August, consumer bankruptcy filings were up by 24 percent over the past year and are expected to increase to 1.4 million this year.  “Consumers continue to turn to bankruptcy as a shield from the sustained financial pressures of today’s economy,” said American Bankruptcy Institute’s Executive Director Samuel J. Gerdano. What are lenders doing to protect themselves from bankruptcy losses? In my last blog, I talked about the differences and advantage of using both risk and bankruptcy scores. Many lenders are mitigating and managing bankruptcy losses by including bankruptcy scores into their standard account management programs. Here are some ways lenders are using bankruptcy scores: • Incorporating them into existing internal segmentation schemes for enhanced separation and treatment assessment of high risk accounts; • Developing improved strategies to act on high-bankruptcy-risk accounts • In order to manage at-risk consumers proactively and • Assessing low-risk customers for up-sell opportunities. Implementation of a bankruptcy score is recommended given the economic conditions and expected rise in consumer bankruptcy. When conducting model validations/assessments, we recommend that you use the model that best rank orders bankruptcy or pushes more bankruptcies into the lowest scoring ranges.  In validating our Experian/Visa BankruptcyPredict score, results showed BankruptcyPredict was able to identify 18 to 30 percent more bankruptcy compared to other bankruptcy models.  It also identified 12 to 33 percent more bankruptcy compared to risk scores in the lowest five percent of the score range.  This supports the need to have distinct bankruptcy scores in addition to risk scores.  

By: Kari Michel Bankruptcies continue to rise and are expected to exceed 1.4 million by the end of this year, according to American Bankruptcy Institute Executive Director, Samuel J. Gerdano.  Although, the overall bankruptcy rates for a lender’s portfolio is small (about 1 percent), bankruptcies result in high dollar losses for lenders.  Bankruptcy losses as a percentage of total dollar losses are estimated to range from 45 percent for bankcard portfolios to 82 percent for credit unions.  Additionally, collection activity is restricted because of legislation around bankruptcy.  As a result, many lenders are using a bankruptcy score in conjunction with their new applicant risk score to make better acquisition decisions. This concept is a dual score strategy.  It is key in management of risk, to minimize fraud, and in managing the cost of credit. Traditional risk scores are designed to predict risk (typically predicting 90 days past due or greater).  Although bankruptcies are included within this category, the actual count is relatively small.   For this reason the ability to distinguish characteristics typical of a “bankruptcy” are more difficult.  In addition, often times a consumer who filed bankruptcy was in “good standings” and not necessarily reflective of a typical risky consumer.   By separating out bankrupt consumers, you can more accurately identify characteristics specific to bankruptcy.  As mentioned previously, this is important because they account for a significant portion of the losses. Bankruptcy scores provide added value when used with a risk score. A matrix approach is used to evaluate both scores to determine effective cutoff strategies.   Evaluating applicants with both a risk score and a bankruptcy score can identify more potentially profitable applicants and more high- risk accounts.