vision 2014: commercial or blended scoring models which one is right for you?

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Commercial or blended scoring models Which one is right for you?

John Krickus Experian

#vision2014

2 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.

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Score performance – blended and consumer only

Blended Inquiry sample 2010

KS 61.70

Bad cap at 10% of pop 38.03%


Bad rate 22.66%

Number of obs 26,410

Consumer Inquiry sample 2010

KS 35.06



Bad rate 14.11%

Number of obs 1,680

Blended segment

performance

Consumer only

segment performance


Blended data Solving the dilemma between business and owner credit

What is blended data?

Combines owner and commercial credit information for the purposes of evaluating the credit worthiness of a business

► FCRA regulated – permissible purpose must be present

Why is blended data important?

Commercial credit files may be thin for young businesses

Owner credit alone is not a good indicator of trouble

Is the earliest indicator of business failure for small businesses


Small businesses make up over 94% of all U.S. businesses (67% of which are micro)

Defining a micro-business

67%

27%

6%

67%

27%

6%

1-4 employees (micro)

5-25 employees

26+ employees


No one wants clients with these logos!


Business credit deteriorates before the business owner’s personal credit, by a slight advantage: 53% to 46%

Showed no major past delinquencies at start

Studied for 16 quarters

Credit behavior tracked of business and owner

“Bad” defined as business with: +90 days past due or derogatory public record: bankruptcy, tax lien

What predicts best, business or personal credit? In reality, you need both…

82.1%

9%

8.1% 1.2%

Random sample of 50,000 small businesses and their owners

Good Business bad

Owner bad Both bad


A closer look Distribution of businesses by performance / years in business

Owner’s credit is more likely to go bad first in a business with less than three years

Cash flow tends to reverse at more than five years in business

Both owner and business credit data are important indicators

1-2 year 2-3 years 3-5 years 5-10 years 10+ years Less than

1 year

Business Bad First

Owner Bad First

Good


Objectively implement strategic credit policy

By estimating bad rates at different score intervals, identify score cut-offs that would allow the client to:

► Maintain approval rates while reducing delinquency rate, or

► Increase approvals while maintaining delinquency rate

Develop ROI scenarios based on improved targeting of new clients at origination

Using blended scores to drive credit policy

Result:

Increased

approval rates

by 9% using

blended score

rather than

consumer only,

while saving

11% on cost

per application


Key takeaways

Consumer or commercial data alone does not provide a complete view of small business credit

Blended data is the best predictor of risk for small businesses

Blended scoring provides higher hit rates that can increase your approval rates and your universe of clients

Experian is the only provider of a true ‘blended’ score

Intelliscore PlusSM outperforms competitive models in hit rate and ability to predict risk


For additional information, please contact:

[email protected]

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vision 2014: commercial or blended scoring models which one is right for you?

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