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The fact of the matter is that lenders of all shapes and sizes have the choice as to which of the major agencies they report their loan performance data to; some chose just one CRA whilst others choose two or even all three. So, despite the degree of data sharing that exists within the CRA industry, as many people will recognise, the information on your credit file from one CRA can be materially different from that shown on another CRA. This phenomena, known as “thin files” drives up the costs for lenders because it leads to an increase in declined appli- cations or referrals (those applicants needing more labour-intensive under- writing attention) which means a drop in conversion rates and, more importantly, disappointed applicants. CRAs do also have occasional outages which leads to the risk of yet more declines and referrals, because applicants cannot be searched for at all during these times. No wonder, then, that the prospect of lenders using more than one CRA to assess an applicant -known as the mul- ti-bureau approach - has gained popu- larity in recent years. What better way to overcome the “thin file” problem, than by calling a second or even third CRA to get a full picture of your customer? It’s a treasure trove of valuable informa- tion when the decision is in the balance! But, just like Indiana Jones trying to find his way to the Holy Grail, metaphorical spears emerge from the cave walls and floors collapse beneath him. In less dra - matic terms, there are some significant obstacles en-route to reaping the bene- fits of a multi-bureau strategy, and traps which are all too easy to fall into. The most significant of these challeng - es is the double counting trap. In 2020, the major CRAs each reported coverage upwards of 70% of UK adults, which leads to two conclusions: 1. Some CRAs have limited or no vis- ibility on up to 30% of the UK adult population (for some CRAs this number will be materially lower)
2. As there are three major CRAs, there will inevitably be duplication, after all, 3 x 70% equals 210% coverage! So, to the uninitiated, a multi-bureau approach would begin with a lender searching one bureau, resulting in a “thin file”, before searching a second bureau to augment the data already obtained. The additional data shows more credit, but also restates some credit commit- ments from the first search, resulting in enough data to make a lending deci- sion BUT duplicated credit commit- ments, which can potentially destroy the affordability calculation. The con- fusion and lack of clarity creates the need for a manual review or automatic decline, leading to higher costs and low conversions. "There are some signifi - cant obstacles en-route to reaping the benefits of a multi-bureau strategy, and traps which are all too easy to fall into." What’s more, one of the biggest risks associated with this approach is of failing to Treat Customers Fairly, a giant boulder thundering towards lenders whose only option is to try to outrun it, because whilst it is well accepted that customers should not be granted credit they cannot afford, it is also unfair to evaluate applicants based upon faulty affordability assessments. Let us say that the first CRA returns details of a mortgage, two credit cards and two personal loans, but a second CRA returns the same mortgage, one credit card (also included in the first CRA search) and two personal loans (only one of which was included in the first CRA search). The applicant therefore has one mort- gage, two credit cards and a total of three personal loans, however, the com-
bined searches show three credit cards and four personal loans. Unless this information is subjected to sophisticat- ed analysis and robust deduplication, a lender may inadvertently double count the offending duplicated commitments and fail the affordability calculation, thus declining the application. This is just one of thousands of exam- ples of how multi-bureau strategies can deliver better underwriting decisions if used effectively but can also create unintended consequences if not, and it is one of the many ways in which DeeJoop , the revolutionary new SaaS service from LendingMetrics can help. Using a sophisticated algorithmic approach, DeeJoop analyses multi-bu- reau API files in real time and returns to the lender a consolidated and distilled view, thus eliminating the risk of double counting credit commitments. This in turn allows for a much higher applicant conversion rate and a more accurate automated affordability calculation and credit decision; a Holy Grail when it comes to onboarding. Such accuracy gives lenders the confi - dence that they are making high quality, high velocity and high-volume deci- sions, as cost effectively as possible, and Treating Customers Fairly whilst doing so.
Above: LendingMetrics' Commercial Director David Wylie
www.lendingmetrics.com
Metrics Monthly | 11
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