Guest post written by Barrett Burns, President and CEO, VantageScore Solutions, LLC.
VantageScore Solutions, LLC is the NAFCU Services Preferred Partner for Credit Scoring.
Times have changed since a promise and handshake were all you needed to get a loan. Now credit scores speak to your character. Most credit unions primarily rely on credit scores to help make consumer lending decisions. Credit scoring models incorporate credit scores with other characteristics related to creditworthiness. In today’s market, there are dozens of different credit scoring models available, from generic models such as the VantageScore 3.0 model, to customized models that are generally expensive to build and maintain.
Even so, it’s a common misconception to think of credit scores as a commodity, or a “one-size-fits-all” risk management tool. A credit score is the numerical representation of the likelihood that a consumer within a specific population will become 90 days or more past due on a debt obligation in a two-year timeframe. It’s important to remember that this propensity to default is assessed within the context of the population being scored. The most effective credit scoring models incorporate other relevant information, such as current economic factors, over a greater population. Choosing the right model for your credit union can help you in ways you might not expect, from saving time and expense to improving accuracy and applicant pools.
Guest post written by Barrett Burns, President and CEO at VantageScore Solutions
The holiday shopping season is now in full swing. Malls and other retail outlets have their decorations up and holiday music playing, enticing us all to shop for our friends and family. And as inevitable as hearing “Frosty the Snowman” is the chorus of checkout clerks asking shoppers if they’d like to open store credit cards to get a discount on their holiday hauls. Sometimes the savings are quite enticing, and depending on personal financial circumstances, they can be a good option. However, there are some issues to consider before signing on the dotted line.
Shortly before the NAFCU annual conference, David Frankil (who needs no introduction to readers of this blog), wrote a post titled, “Is Your Credit Union’s Lending Universe Expanding?”
David’s post was a terrific explanation of how important it is for credit unions to expand their borrower pools in order to keep ahead in an increasingly competitive consumer credit market.
A basic requirement for that expansion is a credit score, which needs a history of credit usage. Some credit score models require very recent credit usage, such as activity on at least one account at some point within the last six months, in order to generate a score. In other words, whether a member has one credit account (e.g., a credit card) or many credit accounts, if there isn’t any activity on at least one account during the most recent six months, that member may be invisible to you when they seek new credit; the credit score model may not recognize their credit history over the past six months and thus may be unscoreable.
Members who are new to the credit market such as recent high school or college graduates, divorced or widowed members or newly arriving immigrants have similar challenges obtaining a credit score for a different reason. Consumers cannot receive a credit score under some traditional models until after six months of reported payment history.