Default Management: Digging Deeper to Reduce Risk
Default management is the one area every financial institution focuses on when a loan application crosses the desk. It is rarely easy to achieve, especially when the information gathered is limited. Risks increase, too, simply because data can change.
Among the factors many financial institutions face are the limitations on data that the traditional credit-score qualification process provides. The information in credit reports could be as much as 30 days old, and it is a mere snapshot of a person’s credit qualifications at that particular time. It is not enough to know with some certainty whether a borrower has the real ability to repay the loan. A lending institution that is looking for ways to reduce costs and improve default numbers needs to go beyond the basic credit qualification.
Better information tools
A growing number of lenders are now using more in-depth information to get a closer look at applicants. It is now possible to learn more about what the borrower’s financial status is in real time.
Employment verification, a very important part of the applicant picture, is one example of the in-depth information lenders can now use to manage risk and default. Confirming an applicant’s employment is not easily done through traditional credit reports. Equifax answers this need with The Work Number, a tool that gives lenders fast access to an applicant’s employment status without contacting employers or handling an exchange of paperwork. Within minutes, this online tool lets a lender know the status of an applicant’s employment.
A secondary area of concern is income verification. It is very easy for applicants to provide inaccurate income in an effort to qualify for a higher loan. The Work Number verifies income within moments, all with no risk of fraud or labor- and time-intensive process.
A default management tool in a lender’s hands is vital. Traditional credit scoring is not enough to reduce the risk of undiscovered liabilities or increasing credit card balances. Better decision making with the aid of a full consumer profile significantly reduces the risk of default without increasing the workload.
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