Differentiated Data is Even More Critical in 2022

Supply chain challenges continue to put a strain on inventory supply for auto manufacturers and dealers. Despite that, we saw a record number of originations in 2021. This included a 10%+ increase in new originations and 20%+ increase on origination balances. This increase equates to $2-3k higher loan amounts on average than previous years. The increase drives revenue growth for both dealers and lenders, even amid the shortages. But as we continue to hear and talk of an impending recession and shifting financial standing for many consumers, it is vital for lenders to take a closer look at their portfolios to get a better understanding of potential risk.

It Has Become Harder to See Individual Credit Health

With the help of accommodations and government stimulus, many consumers took the opportunity to pay off existing debt. In many instances the accommodations and stimulus increased their credit standing.  However, rising interest rates, inflation, the end of government stimulus, and student loan accommodations are now putting pressure on consumers' wallets and increasing debt obligations. On top of that, consumers are spending a higher percentage of their income on household expenses such as gas, food, and rent. Consumers are currently spending more on these expenses instead of paying down debt. We are now starting to see a rise in delinquency in the subprime segment. While some consumers have improved their credit standing over the past 2 years, the current economic conditions have affected consumers in different ways. 

With talk of an impending recession, lenders are having a difficult time identifying a person’s true financial capacity to repay their loans to mitigate portfolio risk.

Especially given current economic conditions, it’s important for lenders to have access to advanced data. This will allow them to make better decisions for their portfolio strategy. Whether prime, subprime, thin or invisible credit, the financial impact of the past two years has shifted loan risk levels to include all consumers, regardless of segment or score.

Lenders need to leverage sophisticated differentiated data assets together to provide the most comprehensive insights on consumer financial profiles.

The Importance of Regular Portfolio Reviews

A regular portfolio review will help everyone understand portfolio performance and provide lenders with the updated, expanded view needed. That way, lenders can better understand their customers’ past and present financial behavior.

Advanced data resources help lenders receive tailored, specific details that assess consumer credit behaviors during fast-changing market conditions.

This information can help to assess risk and opportunity through access to a multitude of credit attributes from all three credit bureaus. Furthermore, it can help lenders understand future trajectories of accounts with trended data that shows an individual customer’s credit behavior over a 24-month period.

Lenders also have the option to leverage key trends or receive timely alerts. These can indicate a consumer’s likelihood to go delinquent or default on their debt obligations. This can inform loan or payment modification, collections and contact prioritization, and proper servicing segmentation. 

Identifying Risk Levels, Spotting Growth Potential

Information that is specific to each account helps lenders identify risk and opportunity at key stages of the account lifecycle. Additionally, it can enable them to make confident decisions that help maximize profitability and ROI, while helping minimize losses, fraud, and compliance issues.

Lenders can help reduce losses and risk exposure when they conduct a regular, interval-driven portfolio review. It allows them to track the creditworthiness of existing accounts so they can take strategic action. Lenders can also check changes in important credit trends or receive alerts based on individuals’ risk status. For example, they can see where growth patterns shift between prime and subprime accounts. As a result, lenders can use this data to change their portfolio strategy. They can determine the proper level of funding for debt reserves and portfolio credit mix. Lastly, they can segment and identify existing customers for effective upselling and cross-selling.

A regular portfolio review is important for lenders, regardless of the state of the economy and automotive industry. With advanced technologies that help lenders gain better insight and understanding of each customer, portfolio reviews can help lenders mitigate risk in their portfolio and identify opportunities for expansion and profit. And, they will gain a competitive edge and maximize their profit potential. Learn more about the Equifax automotive solutions.