Tag Archives: Credit Risk

Risk & Compliance Video: Scotiabank Cencosud Cuts Model Development Times by +50%

Cencosud video interview image
Apr192017

Ever wonder how one of Chile’s largest retailers retains over 3 million customers? We asked Scotiabank Cencosud’s Claudia Guerrero, Model Development Manager of Risk Management in its Retail Finance division. In this Cencosud video, Claudia discusses how the retailer relies on a comprehensive, integrated credit portfolio management solution developed by FICO. This enables it to make better customer decisions, from originations through customer management. In particular, FICO® TRIAD® Customer Manager successfully manages risk-based strategies for credit line increases and cross-selling, and FICO® Model Builder has helped Scotiabank Cencosud cut model development times in half, while still retaining predictive strength — which the company sees as a tremendous competitive advantage. For more information, read the Cencosud case study or visit the FICO Model Management and Compliance solution page.

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Risk & Compliance Examining the Credit Cycle: Is This as Good as it Gets?

Credit-Cycle-Abstract-Featured-Image
Apr132017

More than 70 straight months of US job growth, the official unemployment rate down below 5%, and average hourly earnings growing at a seven-year high of 2.9%. Signs of approaching full employment finally allowed the Fed to see enough stability to inch up rates without being seemingly blown off course by events elsewhere. There will be more rate hikes to come if the economy stays on this course, and in the event the deficits grow, it will pretty much guarantee what we already expect on the interest rate front. With all this in mind, it’s a good time to ask: Has the US credit cycle reached the top? Is it as good as it gets? Of course, we never know that for sure. This is all opinion (some would say speculation), especially on the economic policy front. But you have to feel that if it isn’t the top we are... [Read More]

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Risk & Compliance Afraid of Small Business Lending? Mid-Market Lenders Shouldn’t Be

Small Business Lending for Mid-Market
Apr052017

Some 500,000 – 600,000 new small businesses emerge each year, according to recent U.S. Census Bureau data, and they supply over 60% of jobs. While we’ve expected that number to grow and fuel the economy, it is starting to decrease according to recent reports by TIME and CNN Money. Is small business growth slowing due to lack of innovation and initiative? That seems unlikely. According to a survey done by Insureon, 82% of small businesses expect to grow in 2017. Whether buying new equipment or furniture, hiring, moving, or adding products/services, businesses are planning to expand. So what’s really standing in the way? FICO’s mid-market bank and credit union clients tell us that it remains difficult for entrepreneurs and small business owners to acquire the credit they need to fuel their growth plans. The reasons for this are two-fold. First, there is often little traditional commercial credit history available on... [Read More]

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Risk & Compliance Millennials and Credit: Are We Missing the Real Story?

Millenials and Credit - I'm a Millennial Nametag
Apr042017

Our fascination with millennials and their like or dislike of credit continues to occupy its fair share of column inches – so much so that a while back I decided to take a look for myself. I shared results of that study in a prior blog post, where I revealed that millennial credit habits don’t look too different, at least directionally, from the rest of the population. Here’s what I found: Compared with 10 years ago, today’s 18-24 year olds have lower credit and store card balances, and while they have more auto loans, the value of these loans did not grow as much as inflation would suggest. By contrast, growth in student loan debts outpaced inflation, being both greater in number as well as balances; this undoubtedly creates a drag on capacity for other forms of consumer credit. Subsequently, I also looked at the 25-34 year age band, and... [Read More]

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Risk & Compliance How to Rate Trade Credit Risk – Without Much Data

Darth Vader meme: I Find Your Lack of Data...Disturbing
Mar282017

Allowing people or businesses to pay for things on credit is an ancient practice, and just as ancient is the dilemma: How can you tell if they will pay you back? We know how this works when lending to individuals, but sometimes granting trade credit is trickier. I recently went to visit a new FICO client who are involved in the bunkering industry. Bunkering is the business of providing fuel to shipping, and our client offers credit lines to cruise lines, oil firms and any company that needs to fill up its large vessels with black gold and all its refined derivatives. Like any other institution that offers trade credit (typical firms will pay a bunkering firm within 30 days for the fuel it has purchased), they have a bad debt problem, which is particularly important in an industry with small margins. Although some bunkering firms have turnovers well into... [Read More]

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Risk & Compliance NBC News Probes Two Changes That Could Boost Credit Scores

NBC News Credit Scores Video - retro reporter image
Mar202017

NBC Nightly News recently aired coverage where they examined two changes that could boost credit scores for millions of US consumers. The news agency examined last year’s announcement of FICO® Score XD, aimed at the millions of US consumers who otherwise cannot receive a FICO® Score due to insufficient or stale data in traditional credit bureau files. NBC News discussed how the new score leverages alternative data, such as utilities payments and wireless and cable bill payment history, to determine credit scores. And starting July 1, the three major credit reporting agencies are dropping certain negative information from credit reports, including tax liens and civil judgments. NBC Nightly News shares FICO estimates that 12 million consumers will see their FICO® Scores increase – although, roughly 11 million of these consumers will see only a slight score increase of less than 20 points. View the NBC Nightly News video: Changes to Credit... [Read More]

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Risk & Compliance Do ‘Digital-Only Banks’ Have a Future in Asia?

Mar162017

Imagine a scenario where banks offer their services digitally; not as an ad hoc feature but as a fully integrated mobile experience. A digital-only bank that allows customers to do everything on their smartphones, from opening a new account to making payments, settling credit card bills to resolving disputes, all without having to go to a physical branch. If this vision sounds premature, then perhaps it’s time to update your view of what’s happening worldwide. This was the bold proposition offered by McKinsey & Company’s Sonia Barquin who presented at FICO’s Asia Pacific Chief Risk Officer Forum held this week in Thailand. Banks worldwide are fighting back against fintech start-ups looking to cut their lunch with low-cost banking offerings. Barquin pointed out that some global banks are developing digital-only offshoots while others are bringing the philosophy and business model to their main bank offering. Sonia encouraged the participants to be... [Read More]

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Risk & Compliance Auto Loan Credit Quality: Hazardous Road Conditions Ahead? Part 2

Auto Lending Credit Trends #2
Feb282017

In my last blog post, I shared a new FICO research study on credit trends in auto lending. One key finding highlighted that the size of auto loans has been increasing faster than inflation since the recession. So how are consumers affording these larger loans? It’s simple: consumers are ending up with longer terms for their car loans: While five-year loans were the most popular length of terms in 2009, there has been a swing towards opening six-year loans since then. Seven-year loan terms—while still rare at ~5% of all new loans—seem to be increasing in popularity as well. This trend towards more six-year loans occurred across all FICO® Scores. This shift may signal an increase in credit risk for the industry because six-year loans have historically had higher delinquency rates. However, confirming this requires some care in our analysis. The lingering effects of the recession, average age of the... [Read More]

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Risk & Compliance Auto Loan Credit Quality: Hazardous Road Conditions Ahead?

Auto Lending Credit Trends
Feb222017

The gist of recent media coverage on the state of US auto lending can be summarized by the title of a recent New York Times article: As Auto Lending Rises, So Do Delinquencies. With this concern in mind, FICO recently conducted a research study to examine the credit quality of US consumers with auto loans, as well as other significant credit trends in auto lending. Our findings tell an interesting tale: Banks have been mildly decreasing their car loan underwriting standards. Overall indebtedness for many consumers has been declining since the Great Recession. The size of car loans has been increasing faster than inflation since the recession. More consumers now have six-year auto loans instead of five-year loans, which were the previous standard. These six-year loans have higher delinquency rates, thus this shift to longer-term loans is likely to result in higher losses for US auto loans over the next... [Read More]

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Risk & Compliance For Consumers Seeking Credit Scores, VantageScores Are No Substitute for FICO® Scores

Consumers + credit scores
Feb132017

Consumers today are being bombarded by offers to get their “credit scores” for free.  These lead generation websites don’t provide the FICO® Scores used by nearly all lenders – but some “experts” say that doesn’t matter.  In fact, some people claim that the VantageScores distributed to consumers through these websites are perfectly good approximations of the FICO® Scores used by lenders. The argument goes something like this: because multiple versions of the FICO® Score exist and are used by thousands of lenders, no single FICO® Score represents a consumer’s “credit score”.  It doesn’t matter whether a consumer receives a FICO® Score or VantageScore because they all work similarly: if you rank high on one score, you’ll rank high on another score, and all these scores move up and down together. This is simply not true, and new research confirms it. FICO has nine widely used versions of the FICO® Score... [Read More]

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