Credit Risk

Mitigate Risk in Your Portfolio with These Review Tips

Mitigate Risk in Your Portfolio with These Review Tips

December 13, 2022 | Tom Aliff

You might be asking yourself the $20 trillion-dollar question: are we in a recession? And, what does that mean for risk in my portfolio?

Our advice is: redirect your focus away from panic and to resilience planning. 

While the US economy is sliding from uncertainty to a looming recession as global growth wanes and some consumers are feeling economic pressures, we aren’t yet seeing larger delinquency balances than pre-pandemic for bankcard, private-label card, or first mortgages. The overall US consumer economic health remains largely sound. 

That’s not to say the economy won’t get a little worse before it gets better. Leading economists suggest there will be painful months ahead for consumers and businesses alike. Recessions are, unfortunately, a normal — albeit difficult— part of doing business. They happen every six years or so, and they usually last around 11 months. And while many of us are still reeling from the sting of the 2008 Great Depression, the current economic landscape isn’t the same. We have a stronger financial foundation post subprime lending reform. And businesses have fast access to more holistic data and insights to form comprehensive profiles of consumers and businesses. That means businesses are able to make better decisions in order to stay resilient right alongside their customers.

So: don’t monopolize your brain with disaster scenarios on replay. Instead, simply focus on helping the pocket of consumers in your portfolio struggling to pay everyday expenses. Leverage differentiated data and advanced analytics for current, unique economic and behavioral insights. Reduce risk and even increase share of wallet — no matter market volatility. 

Where to start? Begin with the following portfolio review considerations: 

  • What is the Current Credit Score, traditional or custom [e.g., an enhanced risk scoring designed specifically for credit card issuers], versus at the prior month and at originations? 
  • Are there any changes in credit behavior over time, late payments, or recent defaults among your customer accounts? Keep a focus on accounts with the highest risk by leveraging credit indicators and  Account Management Triggers to help identify consumers with a near-term risk of default or late payment.
  • What is the current Credit Card Open to Buy (maximum amount that a cardholder is permitted to spend using the credit card from time to time which equals the limit minus the outstanding balance)?
  • What is Current Total Revolving Utilization and Open to Buy?
  • Does the consumer have a mortgage? Given rent volatility, this is important. 
  • Look at the Home Equity Line of Credit Open to Buy. A consumer with a mortgage will likely have more liquidity if they also have a line of credit on their equity. We have seen a record increase in Home Equity Originations: over 37% compared to year-on-year. Also consider appending Property Automated Value Models (AVM) to cross-sell or up-sell to these consumers.
  • Does a consumer have a Student Loan going into repayment in January? What is the new monthly payment expected after forgiveness?
  • What is the Total Consumer Debt Scheduled Monthly Payments compared to the prior month versus at underwriting. Evaluate debt to income (DTI), payment to income (PTI), & disposable income, and
  • What are the total TelCom and Utility monthly payment amounts? 

As you think through your next steps for portfolio review, know you don’t have to tackle all these at once. We’re here to guide you through staying resilient right alongside your customers. 

For additional reading on how market-driven attributes can help lenders monitor customers and spot hidden risks within their portfolios: How to Spot Customer Risk Early

Tom Aliff

Tom Aliff

Risk Advisors Leader

At Equifax, Tom leads the Risk Advisors practice. Previously, Tom led the Data and Analytics consulting practice and US Consumer and Commercial Analytics with accountability for creating actionable insights and models delivered to the US consumer and commercial customer base. Tom joined Equifax in July 2009. He brings[...]