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.