Trended Data – Impact on Credit Decisions
In a previous post – Trended Data – Becoming Mainstream, we defined trended data and shared how the use of trended financial data is becoming mainstream in the mortgage industry. In this post, we’ll share an example of how a lender might use trended data in their everyday decision-making process. As a reminder, trended data solutions (also called time series, historical or longitudinal data) analyze a set of data over a specific period of time to identify patterns of past behavior. These patterns are indicative of future behavior.
Incorporating Trended Data into Credit Decisions
Today, many lenders rely strictly on a static credit score. This provides a snapshot in time of a consumer’s credit profile. For example, two people with vastly different spending patterns both reflect a 720 credit score at a specific point in time. However, all you see is a score. Based on this score, both customers look like they carry the same risk and may qualify for the same interest rate on a loan.
Incorporating trended credit data into your decisioning criteria may show you a very different picture. The two customers above both reflect a traditional point-in-time credit score of 720, but when you consider how much and how fast they are paying down their debt over the past six months, or how much they are charging on their open lines of credit over the past year, you get a very different view of the customer.
In this illustration, Customer A is charging increasingly more on his revolving lines of credit, and paying less each month. Customer B is actually paying much more than his minimum payment each month. All things equal, to which customer would you choose to extend credit? Depending on your risk appetite, you may prefer to extend credit to the revolver (paying the minimum and carrying a balance each month) or you may prefer to extend credit to the transactor (paying all or most of his revolving debt each month). Analyzing dynamic spending and payment behavior over time can help you see beyond a point-in-time snapshot of a consumer’s credit file, helping you make a more informed credit decision.
At Equifax, trended data is a key ingredient in a number of our solutions, helping to maximize customer value and deliver more predictive insights. To learn how our trended data solutions can help you drive more profitable growth and better manage risk, visit http://www.equifax.com/business/trended-data. And stayed tuned for future posts as we explore more ways you can tap into the dynamic insights that trended data delivers.
If you haven’t already, please check out the other blogs in this series:
Recommended For You
In November, Equifax and Moody’s joined forces to recap the economic and credit trends of 2018 — and look ahead […]
Consumers Expect a Better Customer Experience Technology is empowering consumers to demand a better customer experience, and this is causing […]
Government agencies are very focused on how to detect insider threats – before problems occur. Nextgov, a federal technology and […]
This is the first in a three-part series from guest blogger, Cris deRitis, PhD, Senior Director at Moody’s Analytics An obscure […]