Under negative credit reporting, the applicant would have a higher credit score based on their perceived low risk. But under Equifax's next-generation score, Equifax One Score (EOS), which was developed since CCR reached critical mass, their credit score would be lower to reflect their high risk. This clearer picture of an applicant's creditworthiness comes from the combination of negative data and extensive CCR data, including up to two years of Repayment History Information (RHI).

Here are four reasons why lenders should embrace comprehensive reporting and switch to using a comprehensive credit score like Equifax One Score (EOS), that provides a fuller picture of their applicants' credit position and repayment ability.

1. Minimise risk

With the inclusion of account and repayment history information, CCR data provides earlier warnings of a borrower's potential inability to pay back the loan. Lenders will have more information about their repayment history for credit accounts like personal loans, credit cards and mortgages. Also, whether on-time repayments have been made for credit products and the dates that credit accounts are opened and closed.

As the market leader in consumer credit information, Equifax holds more CCR and alternative lender data such as Buy Now Pay Later (BNPL) data than any other Australian credit bureau. This distinction means lenders using EOS have access to these high volumes of CCR data: 

  • 23 million open retail accounts

  • 528 million repayment history records

  • 625 million retail credit records.

(as of 14 May 2021)

The increased power of EOS compared to the previous generation Equifax scores means that it is more accurate in its prediction of arrears and defaults. 

Using our new score, we estimate1 that a lender could lower the number of defaults in their personal loan portfolio by up to 19% (based on an acceptance rate of 70%). Similarly, the personal loan approval pool (the percentage of loan applications above the bureau score cut-off) could rise by up to 8.3% while maintaining the same default rate. In other words, a 65% increase in the approval rate for the same risk. This improved predictiveness affords lenders the possibility of reducing their default rates or increasing their approval rates without increasing their risk.

For lenders who have not migrated to CCR, there is a real risk of falling behind. Because these lenders are blind to predictive risk characteristics like repayment history, they are more likely to acquire a high-risk customer than a lender that has this information under CCR – a risk exposure known as adverse selection.

There is the additional risk that third parties who see a lender is not in CCR will introduce the lower quality customers to that lender.

1This analysis does not consider lender policies or other underwriting criteria, and uses the bureau scores as the sole criteria in loan approval for this comparison. The default rates are defined as any account that reaches 90 days past due or worse within 12 months after the date of the loan application being scored.

2. Reveal undisclosed debt

While negative credit reporting does disclose whether an applicant has previously applied for credit, it doesn't reveal when offers are taken up. So lenders can be left in the dark about credit arrangements with others unless the applicant discloses all their liabilities on the loan application. 

The problem goes away under comprehensive credit reporting. Using EOS, lenders can see the liabilities the applicant holds with other lenders in real-time, including the type of credit account, its limit, and its payment status. This greater visibility enables lenders to see patterns of delinquency over time, rather than relying on reports of defaults that have already occurred.

3. Help to meet responsible lending obligations

Improved data availability through CCR helps lenders meet responsible lending obligations by facilitating a more thorough appraisal of an applicant's ability to repay. While income and expenses can help identify indebtedness, the addition of liabilities and performance history gives a more accurate and rounded picture of a consumer's financial situation. 

The benefits continue after a customer has been onboarded. At all stages of the credit lifecycle, lenders can remain alert to early financial stress and hardship signs. If a lender knows the customer is struggling at another financial institution, they can use this information to provide support with affordable payment solutions customised to customer conditions.

4. More insight into thin-file borrowers

Rejecting a loan application because there is not enough information on their credit file to determine their risk can mean giving away a creditworthy customer. In today's disrupted marketplace, where customer-centricity and growth are crucial, there is a significant benefit to separating the likely good borrowers from the likely bad borrowers among those with limited credit history. 

With more visibility under CCR, 'new to bureau' (new seekers of credit) and other applicants with limited credit records (thin files) have greater opportunity to demonstrate their reliability. 

Recent model analysis of Equifax's new generation score shows an increase in the predictive performance of 100% for the new-to-bureau segment*. EOS leverages advanced analytics, better matching capabilities and broader coverage to identify predictive behaviour patterns, which for lenders can translate to an increase in customer approvals with less of a risk of an associated hike in the rate of fraud or non-performing loans. 

Making credit available and at a fair price to thin-file borrowers boosts financial inclusion and enables a more equitable treatment of consumers.

What about the work involved in implementing CCR?

Because the CCR regime works on the principle of reciprocity, lenders must share their own consumer credit portfolio data to gain additional data from other lenders. Smaller lenders intending to participate in CCR are often concerned about the time and investment required to develop value from this additional information.

We want to assure you that implementing CCR is not as daunting as you think. Our CCR Express Solutions have helped over 40 credit providers successfully migrate for little cost, time and effort. Our solutions help you address concerns like whether the customer information in your systems is accurate and whether the information gathered is secure and protected.

Once data is supplied, it's quick and easy to start using our new generation score. EOS is accessed through the Equifax web portal, IQ Connect, or systems channel API Connect. Before you include it in your decision matrix, the new score can run parallel with whichever previous generation score you're using.

Our team provides a complimentary score comparison service that includes average score correlations, cumulative gains and bad rates by decile for your portfolios. We can simulate head-to-head comparisons of the score you're currently using and EOS. 

Contact Equifax to find out how to share CCR data and grow your market share by migrating to our next-generation credit score.

 

Useful reading: 

Top 12 Questions We Get Asked about Equifax One Score

Closing the Gap on Missing Repayment History Behaviour

 

* The New to Bureau segment Gini increased from low 20s to mid 40s and made up circa 4.5% of the through the door population 

 

 

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