Due to the high profile of the consumer debt issue in the national media, lenders risk damage to their reputation, as well as the very real threat of credit losses, as a result of customer debts. However, it is a difficult balancing act with commercial pressures. The Equifax Indebtedness Solution Pack aims to help lenders tackle the issue head on.
Steve Taylor, Product Development Director of Equifax comments, "Until now lenders have had limited opportunity to fully analyse and assess the danger signs of customer debt through credit reference data. Information and scores from credit reference agencies have been based heavily on previous arrears and default information â perhaps supplemented by simple indices classifying levels of indebtedness.
"However, after detailed and thorough research, Equifax has identified a number of key characteristics and measures that provide a unique insight into the predictive debt patterns of an individual. These reflect the fact that it is not merely a customerâs overall debt level that is important. The growth rate of debt, combined with the mix of credit products and services they are using, are also factors."
Equifax has, therefore, created a number of precise indicators to predict customer indebtedness, including:
- Overall secured and unsecured debt levels and ratios
- Debt velocity measures - profiling the growth profile of an individualâs indebtedness
- Profile of debt levels by type of credit product
- Classification of "primary" and "secondary" use revolving accounts
- Profiling of debt levels and balance to limit ratios in over-limit and overdue accounts.
Equifaxâs Indebtedness Solution Pack offers a uniquely flexible and comprehensive approach to the delivery of these new debt metrics and consists of 3 elements; a stand-alone indebtedness score, a comprehensive collection of indebtedness indicators, and a combined credit risk and indebtedness score.
Todayâs rising debt levels themselves form a serious problem for lenders. In the current relatively benign economic environment (relatively low interest rates, high employment and free availability of credit) it is hard to see the added risk arising from debt affordability that is emerging in the current credit market.
It is for this reason that Equifax has constructed the Indebtedness Score. This is a specific risk score that assesses the credit risk of an individual, based purely on their current and historical debt profile. This score can be used as a strategy tool in its own right or as a cross-tabulation with standard risk scores to identify segments where the differing debt risk profiles can be used to drive different lending strategies. In addition, the Indebtedness Score in itself will provide a unique barometer of the debt profile of an applicant base or customer portfolio.
As part of its Indebtedness Solution Pack, Equifax is also releasing a comprehensive collection of indebtedness indicators. Developed from an in-depth analysis of thousands of possible measures of debt, this list represents the key predictors and differentiators of credit risk based on current and historical credit balance and credit limit information.
The third component within the Indebtedness Solution Pack is a new combined credit risk plus indebtedness score. This new score combines the power of Equifaxâs market leading risk score with the insight of the new indebtedness indicators, providing the most thorough risk evaluation tool available today. Lenders are now able to have a far greater understanding of the debt profile of individuals and can even tailor their own specific indebtedness scores and policy rules based upon the indicators.
Steve Taylor concludes, "The Equifax Indebtedness Solution Pack is the most powerful, complete and detailed scoring and information base available to lenders, enabling them to control rising debt levels and their consequences.
"In todayâs climate, it is essential that lenders have access to the most in-depth and comprehensive consumer information. The Indebtedness Solution Pack is part of Equifaxâs ongoing commitment to arm lenders with the best quality data to help them tackle rising consumer debt and its associated problems."