Differentiated data: Even more critical in 2023
Supply chain challenges continue to put a strain on inventory supply for auto manufacturers and dealers. While origination balances continued to increase in Q4 2022, it was not due to an increase in the number of vehicles sold. In fact, with record high prices and rising interest rates, the number of origination units, or vehicles sold, declined by 5% YoY in September 2022. These conditions are not favorable to many consumers. With rising delinquency rates, talk of an impending recession, and continuing shifts in financial standing for many consumers, it is more vital than ever for lenders to monitor their portfolios closely to get a better understanding of potential risk.
Increase difficulty in seeing individual credit health
With the help of accommodations and government stimulus, many consumers took the opportunity to pay off existing debt. In many instances, this financial boost increased their credit standing. Yet, 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 general household expenses, so much so that they are currently spending more on these expenses instead of paying down debt. We are seeing some of the largest increases in 60-day delinquencies in over a decade. While some consumers have improved their credit standing over the past few 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, lenders must have access to advanced data. This information will allow them to make better decisions for their portfolio strategy. Whether prime, subprime, thin, or invisible credit, loan risk levels have shifted to include all consumers, regardless of segment or score, due to the financial impact of the past few years.
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 rapidly 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, portfolio reviews can help lenders understand future trajectories of accounts with trended data that show an individual customer’s credit behavior over a 24-month period.
Lenders also have the option to leverage key trends or receive timely alerts, which can indicate a consumer’s likelihood to go delinquent or default on their debt obligations. This data can inform loan or payment modification, collections and contact prioritization, and proper servicing segmentation.
Identifying risk levels and spotting growth potential
Information specific to each account helps lenders identify risk and opportunity at key stages of the account life cycle. Additionally, it can enable lenders 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. This analysis 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 an individual’s risk status. For example, they can see where growth patterns shift between prime and subprime accounts. As a result, lenders can use these data points 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 allow lenders to 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. Plus, they will gain a competitive edge and maximize their profit potential.
Learn more about how to grow your auto business, harness digital insights, and conduct profitable portfolio reviews with Equifax automotive solutions.
To view our original blog from September 2022, click here.
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