How Consumer Credit Reports Benefit Lenders and Brokers

1. Increased indicators for credit risk

As a lender or mortgage broker, we understand that you’re in the business of assessing risk. You may need to determine the likelihood of a borrower repaying their loan on time and in full. Credit reports can assist with understanding how your applicant has historically managed credit, including their previous applications, the type of credit applied for and with which lenders. Also included are vital clues to their reliability, such as records of late payments or the existence of court actions.

Your credit report incorporates a credit score which indicates  the probability of your applicant having an adverse event within the next 12 months, including becoming 90 days or more overdue. With increasing volumes of positive financial data shared with credit bureaus under Comprehensive Credit Reporting (CCR), there has been a substantial step-up in the predictive power and coverage of new-generation credit scores. The improved accuracy of Equifax credit scoring models has enabled credit providers to reduce their default rates or increase their approval rates without taking on more risk.

Useful reading: Predicting the Probability of Default Just Got Easier

2. Better decisions across the credit lifecycle

With easy access to more accurate, relevant, easily digestible data about an applicant, credit reports allow lenders and mortgage brokers to make better decisions across the entire credit lifecycle, from pre-screening, pre-qualification and origination to account management and early collections.

Credit scores built on models incorporating extensive event, enquiry, and CCR data provide the breadth of information that supports a broader understanding of a borrower’s credit obligations. The potential of supplementing scores with Buy Now Pay Later (BNPL) data adds another layer to indicators of creditworthiness. At the same time, innovative machine learning techniques extract more insights about credit behaviour than ever before.  

Useful reading: The Next Best Thing in Credit Scores

3. Tailored credit offerings

Credit reports and scores can segment borrowers into risk categories, enabling loan offerings to be customised with risk-based pricing. Tailoring loans to individual borrowers can attract a broader customer base, engaging high-quality borrowers shopping for the best terms. At the pre-qualification stage, having access to reliable information on which to evaluate creditworthiness can help improve conversions and reduce bad debt by removing customers who don’t fit a specific credit profile.

4. Faster time to yes

A reduced time to ‘yes’ can accelerate sales and maximise profitability. With a snapshot view of financial health through a credit report and score, credit providers can quickly gauge an applicant’s creditworthiness, reducing groundwork and approval time. Equally, valuable time isn’t lost on unsuitable leads that won’t meet lending criteria or that require further evaluation.

5. Greater consistency and compliance

The inclusion of CCR data in credit reports assists credit providers in growing their portfolios responsibly by offering a more precise and holistic understanding of a borrower's financial position. Information about liabilities and credit performance history complements income and expense data in helping identify existing debts and calling out early indicators of financial strain.
In an environment of tighter regulation and growing concern about data-led bias, it is more important than ever for credit providers to make compliant, informed and responsible decisions when assessing credit risk.   

Useful reading: Top 12 Questions We Get Asked About Equifax One Score

6. More insight into marginal applications

Where previously, credit opportunities were declined due to insufficient information, including non-traditional data like BNPL into credit scoring can increase the granularity of credit assessment. New-generation credit scores achieve a better risk separation between new borrowers and applicants with limited credit records.

Making credit available and at a fair price to marginal borrowers boosts financial inclusion and allows credit providers to increase customer approvals without an associated hike in the rate of fraud or non-performing loans.

Offering better credit access and terms can help deepen customer relationships. So, too, does the transparency that comes with next-generation credit scores that use ‘explainable’ artificial intelligence to provide logical and actionable reasons for what drives the score up or down. When a borrower can understand the direct relationship between their credit score, actions, and better terms, there is a greater incentive to manage debt wisely and pay bills on time. Credit providers benefit from these more informed customers who are less likely to default and more able to meet their financial commitments.

See why Equifax credit reports and scores help lenders and mortgage brokers make prudent credit decisions that enhance the lives of millions of Australians.

 
Download our free eBook How to Read a Consumer Credit Guide.