How Changes to Consumer Tax Lien Data Impact Commercial Credit Profiles and Scores

By Gary Stockton, Experian

Last year the three primary credit bureaus; Experian, Equifax, and TransUnion announced and implemented enhanced standards for the collection and timely updating of public record data reported on consumer credit reports. This was done in accordance with the National Consumer Assistance Plan requirements. Part of this work involved the partial removal of consumer tax lien data from Experian’s consumer credit reporting database.

With the complete removal of remaining tax lien data scheduled for April 16th, some of our clients have asked how these changes might impact commercial credit reports. In this business Q&A I ask Brodie Oldham for some clarification.

What is NCAP and how did it impact Experian’s core credit data?

Brodie Oldham: Gary the NCAP is the National Consumer Assistance Plan and it was put in place by the three U.S. credit reporting agencies Experian, Equifax and TransUnion in response to the U.S. attorney general’s request for clarity and transparency in consumer credit data.
The data that was the main focus was data that did not meet completeness or freshness requirements of data furnishers to the credit reporting agencies. The data that had the most impact from the study was public record data; judgments and liens for consumers that weren’t updated or didn’t have all of the personal identifying data necessary to meet the guidelines. This data is planned to be removed in April of 2018.

Was there impact to Experian’s commercial credit data?

Brodie Oldham: No Gary not an impact to our commercial credit data collected at Experian. We continue to collect that public record information for use in evaluating small businesses through our commercial credit scores. The impact with the public record information is really when we’re evaluating a business owner guarantor using the consumer credit information where public record data has been removed.

What was the impact to commercial blended scores?

Brodie Oldham: The impact is when we’re evaluating small business owners or guarantors using their consumer credit information. When we look at segments where commercial-only data is used there is no impact there because we’re not changing the way that we collect public record information on the commercial side of our business?With the blended scores you would expect that if we remove some of the consumer derogatory information in public records that the score would go up. And we saw a mean lift to about .03 percent, so very small. In the performance of the blended generic credit scores in their evaluation and capture of those delinquent accounts. We saw a very insignificant lift, so the scores are very stable and working well even with the change that we’re having with public records.

To view a video of the interview, click here.

CMA offers solutions, such as Experian and other bureau credit reports, Industry Credit Groups and more to help companies determine how much business credit to extend. For more information on how we can help your company, contact Credit Management Association at 818-972-5300 or visit www.CreditManagementAssociation.org.

This article originally appeared here and has been reprinted with permission.

Why Financial Institutions Need an Analytics Sandbox

Experian is a CMA credit reporting partner.

The appetite for businesses incorporating big data is growing significantly as the data universe continues to expand at an astronomical rate. In fact, according to a recent Accenture study, 79% of enterprise executives agree that companies that do not embrace big data will lose their competitive position and could face extinction. Especially for financial institutions who capture and consume an incredible amount of data, the challenge becomes how to make sense of it. How can banks, credit unions, and other lenders use data to innovate? To gain a competitive advantage?

This is where analytics sandboxes come in.

A sandbox is an innovation playground and every data-consuming organizations’ dream come true. More specifically, it’s a platform where you can easily access and manipulate data, and build predictive models for all kinds of micro and macro-level scenarios. This sounds great, right? Unfortunately, even with the amount of data that surrounds financial services organizations, a surprising number of them aren’t playing in the sandbox today, but they need to be. Here’s why:

Infinite actionable insights at your fingertips
One of the main reasons lenders need a sandbox environment is because it allows you to analyze and model many decisioning scenarios simultaneously. Analysts can build multiple predictive models that address different aspects of business operations and conduct research and development projects to find answers that drive informed decisions for each case. It’s not uncommon to see a financial services organization use the sandbox to simultaneously:

  • Analyze borrowing trends by type of business to develop prospecting strategies
  • Perform wallet-share and competitive insight analyses to benchmark their position against the market
  • Validate business credit scores to improve risk mitigation strategies
  • Evaluate the propensity to repay and recover when designing collection strategies

A sandbox eliminates the need to wait on internal prioritization and funding to dictate which projects to focus on and when. It also enables businesses to stay nimble and run ad-hoc analyses on the fly to support immediate decisions.

Speed to decision
Data and the rapid pace of innovation makes it possible for nimble companies to make fast, accurate decisions. For organizations that struggle with slow decision-making and speed to market, an analytics sandbox can be a game changer. With all your data sources integrated and accessible via a single point, you won’t need to spend hours trying to break down the data silos for every project. In fact, when compared to the traditional archive data pull, a sandbox can help you get from business problem identification to strategy implementation up to 30% faster, as seen with Experian’s Analytical Sandbox:

Analytical_sandbox


Cost effective analytics

Building your own internal data archive with effective business intelligence tools can be expensive, time-consuming and resource-intensive. This leaves many smaller financial services at a disadvantage; but sandboxes are not just for big companies with big budgets. An alternative solution that many are starting to explore is remotely hosted sandboxes. Without having to invest in internal infrastructure, this means fast, data-driven decisions with little to no disruption to normal business, fast onboarding, and no overhead to maintain.

For financial institutions capturing and consuming large amounts of data, having an analytical sandbox is a necessity. Not only can you build what you want, when you want to address all types of analyses, you’ll have the insights to support business decisions faster and cheaper too. They prove that effective and efficient problem solving IS possible!

CMA offers solutions, such as Experian and other bureau credit reports, Industry Credit Groups and more to help companies determine how much business credit to extend. For more information on how we can help your company, contact Credit Management Association at 818-972-5300 or visit www.CreditManagementAssociation.org.

This article originally appeared here and has been reprinted with permission.

Why Data Models Matter More Than Ever

By Brodie Oldham, Experian

Are the credit models you are using to make lending decisions more than 2 or 3 years old? If so, you are likely making less than optimal credit decisions. You may be turning down a customer who is a good risk — while taking on customers who are more apt to default on their obligations.

Every year a model isn’t updated, its accuracy decreases. The economy changes. The consumer’s or business’s financial situation changes. Updating your models, using the most current data and attributes available, you can have confidence that you are making good credit decisions.

To make the most accurate credit decisions possible, many businesses are now turning to data-driven decisioning models that are powered by artificial intelligence (AI) within machine learning engines. While the standard regression model works well in some industries, the lift in predictive value from using AI data models can be very important in other industries, such as retail, fraud and marketing. These models use sophisticated algorithms to predict the customer’s future ability to repay their obligation, which means a much more accurate decision than traditional models.

Starting with High Quality Data

Primary-Experian-Violet-data-iconWhile data has always been at the core of credit decisions, models using machine learning are even more dependent on data. These models can be very accurate, but their accuracy depends on having the necessary data to understand what happened in the past and present behavior to make a prediction for what will happen in the future. The more data provided, the higher the accuracy of the decision. Here are three things to consider when building your data-driven decisioning model:

 

Clean Data – As innovation spurs business and technology to run faster and more efficient, the quality of the data underneath all of that innovation becomes even more important. Machine learning becomes smarter the more data it consumes. This means the accuracy of the credit decisions made by the model is largely dependent on the quality of the data provided. Data from third-party sources often contains mistakes, missing fields, and duplicate information, which results in less accurate credit decisions.

Correct Data Points – The accuracy of the results depends on considering the right criteria in the form of data points in the model. When you use machine learning and AI algorithms, they can predict which specific data points will help increase the performance of the model for the specific customer and the specific type of credit decision. Often, data points that you may not consider are the ones that can make a big impact on the accuracy of the decision.

Real-Time Data – In the past, there was often significant lag time between collecting and being able to use the data. By using real-time data with machine learning models, you can get a clear picture of the most current view possible and see changes in the different data points as they occur. This lets you make a much more accurate prediction of what will happen, with the consumer or business, than was previously possible with a traditional credit decisioning process.

Using Alternative Data to Get the Full Picture

Primary-Experian-Violet-profile-iconOften, additional data — typically referred to as alternative data — that is not readily available from traditional data providers is used to enhance the accuracy and predictive ability of a model. While the model can seem complete without this information, the model may provide suboptimal results without it. Machine learning models can predict the situations and exact type of alternative data a model needs to produce an accurate decision. Experian offers a wide variety of alternative data that clients can use to improve decision models.

For example, a business owner may be taking out short-term loans to increase her cash flow, which makes her a much higher credit risk than she appears to be without this data. Weather information is also a common type of alternative data; a business located in Tornado Alley may need higher cash reserves to be a good credit risk. On the other hand, businesses located in an area impacted by a recent weather event, such as a hurricane, may be a good credit risk even with a lower score because both their business and local economy is recovering.

Regularly Evaluating Your Data Model

Primary-Experian-Violet-calendar-icon
You must build in governance and make sure you are evaluating how the model is working on a regular basis, like having an annual checkup with your healthcare providers. Once you begin using a data model, you can’t simply set it and forget it. Ask the following questions to periodically evaluate your models:

  • Are there changes in the outcome of the models? You need to verify that your attributes are still predicting the same outcomes as intended, as well as capturing the same data. For example, say you have an attribute in your model that counts the number of credit lines open for a small business. If the attribute changes and those types of credit lines are no longer reported by the data provider, that number can go from three or four to zero, without there being a change in the number of credit lines open by the business. Because the data that goes into your model has changed, your model is not accurate unless you update the attribute.
  • Is your model stable? You need to make sure that degradation hasn’t reached a point where the predictive value is no longer accurate. For example, scores before the 2008 recession have a different meaning than afterwards, due to the changes in the financial system.

The future of your business depends on making accurate credit decisions. Instead of using outdated models, use the latest technology and methods available by using machine learning data-driven models. It’s simple. It’s quick. And most importantly, data-driven models are accurate.

CMA offers solutions, such as Experian and other bureau credit reports, Industry Credit Groups and more to help companies determine how much business credit to extend. For more information on how we can help your company, contact Credit Management Association at 818-972-5300 or visit www.CreditManagementAssociation.org.

This article originally appeared here and has been reprinted with permission.

How to Find Credit Information About Your Customers by Using the CMA Credit Report, by Kim Lamberty, CAE

It’s hard to believe that 2018 is nearly half over. Time passes way too quickly!
At CMA, this has been one of the busiest years I’ve seen, as we are continuing to work on exciting new initiatives that will help your company’s credit and finance teams.

I love the opportunity to talk with members and customers; lately during these conversations we discuss cost savings and doing more with less. These issues are affecting every business. Utilizing cost-effective tools is one way to adhere to budget restrictions and bring efficiencies to the Credit Department. We’ve been looking at different solutions to help solve these issues and to that end I’m happy to tell you about the brand new CMA CREDIT REPORT. This report is a cost-efficient way to access data for small- to medium-sized companies that are not usually reported to the larger credit bureaus.

The CMA Credit Report, which is the result of a partnership with data provider Ansonia Credit Data, offers payment trends and experience on your customers so that you can make informed credit decisions. The report includes payment history, bankruptcies, risk score, balance, days beyond terms and more. Better yet, the report is available at an affordable price point: CMA members get 5 free reports to try during their membership calendar year, and then pay $12.95 per additional report. Members who contribute their data to CMA get an additional 5 free reports, and pay $10.95 per additional report.

The report is also integrated with anscersX, our multi-bureau reporting solution that allows users to get the most-used data elements from the major bureau reports with one click.

We are excited to hear from our members on your thoughts on the new report. We hope you enjoy this new benefit, and that it’s useful in your credit decision making process.

D&B Credit Helps You Monitor & Manage Your Account Risk

When you work with multiple accounts, staying on top of each and every one can seem impossible. When risky accounts slip through the cracks, your business could be affected. But by closely monitoring your accounts and being alerted to changes, you can make faster credit decisions and protect your business.

D&B Credit can help you manage and monitor your account risk with ease. User-friendly, smart and simplified, D&B Credit makes accessing the industry-leading relationship data and financial scoring models from Dun & Bradstreet easier and more effective than ever. Now you can keep a close eye on your key accounts and better monitor your entire portfolio.

D&B Credit is a modern, dynamic platform that allows you to:

  • Configure alert profiles to effectively monitor customer financial health and protect your business.
  • Consolidate alerts into a daily email, plus view them on your portfolio dashboard, homepage and credit reports.
  • Get a detailed history of alerts on any of the businesses you’re tracking.
  • Enhance corporate governance by ensuring that all accounts are monitored and meet corporate standards.

Talk to your CMA account rep to learn more about D&B Credit!

What’s New at Credit Management Association?

CMA Logo

Greetings from CMA!

Now that the holidays are over, Credit Management Association is back with full steam ahead into projects that can help your company manage risk.

Here are a few of the projects we’re working on that you should be aware of:

– CMA recently announced our CreditScape Spring Summit, which will focus on process improvements in the credit department and cutting costs. The one-day event takes place April 12 in Garden Grove, CA. More info: www.creditscapeconference.com

– CMA and AG Adjustments are proud to announce a new collections-related webinar series that is must-attend material for anyone who works in that field. The webinars feature three of our most popular speakers: Bart Frankel, Dave Osburn and Greg Powelson. http://creditmanagementassociation.org/2017/01/31/cma-announces-new-collections-webinar-series/

– Future dates have been set for CMA’s new International Credit Best Practices Forum. For U.S. companies that sell abroad, this group can help you navigate some of the hurdles you might experience when selling overseas. More info is here.

– With all of the bankruptcies in the news last year from longtime strong companies, when is the last time you evaluated your credit information sources? CMA has a great resource who handles reports from all of the major bureaus and can get you the best solution for your company, not just the best solution from one bureau if you went direct. Learn more here.

– Several new advanced lien law webinars have been announced. If your company does construction-related business in Texas, California or Nevada, you should attend these sessions, which can be found on our education calendar. Details: http://www.creditmanagementassociation.org/events

– Speaking of construction-related business, CMA’s fast and accurate construction lien filing services can help protect your receivables to ensure you get paid on those projects. More: http://creditmanagementassociation.org/construction-forms-filing/

 

Are you getting CMA’s updates, including news and updates from around the credit and collections profession? If not, subscribe to our newsletter here: http://conta.cc/1tA5pOE
If there are any other services you need to help your credit operations run smoother, we’d love to talk to you about ways we can help. You can reach us at 818-972-5300 or at www.creditmanagementassociation.org.

Thanks for reading!

Here’s to the Unsung Credit Heroes, by Tracy Rosenbach, CCE

Greetings! I hope everyone is having a good month. I was at an Industry Credit group meeting recently where I was thinking, nowadays everyone is concerned with saving money, minimizing expenses, etc…, so I decided to write this month’s blog on “How you can be a hero to your company.” As credit managers, we have the responsibility of reviewing our credit reporting services periodically for better pricing and enhancements to the products, similar to you obtaining car insurance quotes in your personal life when your insurance comes up for renewal. Whether you decide to change services or not, it’s always a good idea to be aware of what’s available in the marketplace today.

Here are some questions to ask: Do the reports you currently use include the best information you need to make informed credit decisions? Is there additional data that you’d like to see on the reports you’re using?

CMA is here to help. I encourage you to contact Terry Campos at CMA to help guide you through the process. She is a brand-neutral resource, with 44 years of experience working with NACM and the three major commercial credit reporting bureaus. If you are not happy with the service you are currently using, she will work with you to find another solution so that you don’t have to do this on your own.

I also recommend you participate in CMA’s free webinar series on credit reporting, which begins June 9th. You’ll be able to hear from Terry and reps from the credit bureaus as they talk about what’s new and provide an overview of their products. Sign up at www.creditmanagementassociation.org/events, I believe it will be well worth your time.

You can be a hero by saving your company money and making your job easier by being able to access quality credit information that helps you make sound credit decisions.

I look forward to seeing you at Credit Congress in June!

Tracy Rosenbach

Tracy Rosenbach, CCE, is the Financial Services Manager at Silgan Containers LLC and Chairperson of the CMA Board of Directors. She can be reached at 818-710-3729.

New AnscersX Enhancements Give Credit Managers a Better Understanding of Their Customers, by Teresa Campos

anscersxIt’s been more than a year since the launch of the anscersX multibureau trade credit report, which offers credit managers a one-click look at credit scores of their customers from the three major credit reporting bureaus. Since the report was launched, we’ve listened to our users and are proud to announce some valuable additions to the report aimed at helping you make quick and well-informed credit decisions.

The improved report includes more flexibility for you to choose the data you need and the price you will pay. It is now up to you to select data from one, two, or all three of the bureaus included in the anscersX Report (Dun and Bradstreet, Equifax and Experian).

We have added valuable information from Equifax including:

  • The Ultimate Parent
  • Headquarters Site information
  • Alternate Company Names & DBA’s
  • Owner/Guarantor
  • An easy to read Average Days Beyond Terms graph
  • Additional Report Highlights (# of accounts, # of delinquencies, charge offs and more

We have added valuable information from Experian including:

  • Years in File
  • The Date of Incorporation
  • SIC Code
  • An Industry Risk Comparison

anscersX pricing, which ranges from $32.35 to $69.95 depending on the combination of bureaus you choose, is a truly unique product that paints a true picture of your customers to help you better manage risk.

For those who would like to learn more about anscersX, I invite you to participate in an upcoming webinar exploring the anscersX report citing specific examples from the report. You can register here.

To download a sample report, visit www.anscers.com or contact me directly if you have any questions at 818-972-5361.

How to Explore Different Credit Reporting Services

Credit Reporting can be the lifeblood of a credit manager’s decisioning process, but not all credit reports are created equally. Different reports have different strengths, and it’s to your company’s advantage to use the right information to protect your company’s receivables.

To educate you on these strengths, CMA is offering several webinars to help members learn about the basics features of major credit reports.

The sessions are:

We hope that these sessions will guide you to understand which reports are best for managing risk for small and large businesses; explain new features and upgrades you may not have been aware of; and help you assess whether you’re using the right credit reporting solutions for your needs.

Best of all, these sessions are free to CMA Members.

To sign up for these and other events, visit http://www.anscers.com/upcomingevents.aspx or contact CMA Member Relations, at 800-541-2622.

Top regulatory priorities for the commercial lenders

Tony Hadley of Experian
Tony Hadley of Experian

by Tony Hadley

Senior Vice President, Government Affairs and Public Policy, Experian

 

In many cases, business lenders often rely on the commercial credit of the enterprise coupled with the personal credit of the business owner when making lending decisions. This is especially true for sole proprietorships and partnerships. To that end, regulatory action and public policy initiatives aimed at consumer credit often times can have a direct impact on commercial lenders. This blog takes a look at some of the top regulatory priorities for business lenders within the credit ecosystem.

Ensuring the accuracy of credit data
Over the past two years, the Consumer Financial Protection Bureau (CFPB) has taken several actions to make clear that it believes data furnishers — including lenders — are responsible for ensuring the accuracy of the credit data that they report to credit reporting agencies (CRAs).

The CFPB issued two bulletins — in September 2013 and February 2014 — reminding data furnishers of their responsibilities under the Fair Credit Reporting Act (FCRA) and the need to properly conduct investigations when a consumer disputes an inaccuracy.

The CFPB backed up these bulletins with an August 2014 enforcement action against a lender that it said failed to fix flaws in its software system that were causing it to report inaccurate credit data to the CRAs.

Debt collection practices remain in the spotlight
Another top focus of regulators that may overlap with small business lending is increased scrutiny of the debt collection market.

Within the collections industry, the CFPB has focused on problems related to how information about a debt is transferred from a first party to an outside agency or debt buyer, as well as the standards and timing of when a collections item goes onto a consumer’s credit report. To that end, in December 2014 the CFPB announced that it was requesting the national credit bureaus to provide regular accuracy reports that highlight key risk areas, including disputes, for consumers. The CFPB will use these reports to help prioritize their work on accuracy metrics, including: furnishers and industries with the most overall disputes; and furnishers with high disputes relative to their industry peers.

The CFPB also released an Advanced Notice of Proposed Rulemaking (ANPR) in November 2013, covering a wide array of complex issues within the debt collection market. It’s expected that they will release the first version of its proposed rule for the collection market in late 2015 – early 2016.
Policies boosting financial inclusion are also critical for business lending

Commercial lenders should also pay attention to efforts by policymakers to improve financial access for the more than 60 million American consumers that either have a thin credit history or no credit data at all. In the case of an entrepreneur, a thin or no hit credit file would make it much more difficult to access affordable capital.

One way to improve the ability for unbanked individuals to access affordable credit is through the reporting of on-time payments made to utility, telecommunication and rental companies by consumers — often referred to as “alternative credit data.” While they have long made pricing decisions based upon the full-file credit data furnished by creditors, historically telecom and utility companies have only provided negative data — i.e. late payments or if an account is in collection.

Including both positive and negative data from these sources will enable tens of millions of thin-file consumers — and small business owners — with a proven record of meeting financial obligations to access fair and affordable credit. The CFPB weighed in on the importance of including alternative data in a 2013 report on financial empowerment. Bipartisan legislation has been introduced the past two sessions of Congress that would clarify federal law to encourage utilities and telecom providers to report positive credit data to the nation’s credit bureaus.

Coming soon: CFPB data collection on women and minority owned businesses
Small business lenders are also keeping a close eye on the development of the new data collection requirements under the Dodd-Frank Act. Despite the CFPB being primarily focused on consumer lending, the agency was tasked with implementing a provision of the Dodd-Frank Act that required lenders to ask small business applicants if the business was women or minority-owned.

The problem is that this question is currently prohibited under Equal Credit Opportunity Act (ECOA), as a creditor cannot inquiry about the race, color, religion, ethnicity or sex of an applicant. The CFPB will ultimately have to provide guidance to help resolve the conflict between these two laws.

While this new sweeping data collection mandate will not become effective until the CFPB adopts the necessary regulations, it’s easy to see how this could ultimately impact small business lenders.

As many have said before, small businesses are the lifeblood of our economy, but they need funds to grow. We’ll want to keep a close eye on each of these initiatives, as the regulatory impact can be huge for small business lenders, and the ability for small businesses to access capital.

Tony Hadley is Senior Vice President of Government Affairs and Public Policy for Experian. He leads the corporation’s legislative, regulatory and policy programs relating to consumer reporting, consumer finance, direct and digital marketing, e-commerce, financial education and data protection. Hadley leads Experian’s legislative and regulatory efforts with a number of trade groups and alliances, including the American Financial Services Association, the Direct Marketing Association, the Consumer Data Industry Association, the U.S. Chamber of Commerce and the Interactive Advertising Bureau. Hadley is Chairman of the National Business Coalition on E-commerce and Privacy. For information about reports available from Experian, contact Terry Campos at 818-972-5361.

Not The Top Ten List You Want To Be On, by Larry Convoy

With due respect to David Letterman and Sports Center’s nightly “Top 10” lists, there are some lists that you would be better off not being on.  One that directly affects you and your company is “The Top 20 Creditors in a Bankruptcy Case,” a document that is easily obtainable by accessing Pacer. No company likes to see their losses published for all to see.

CMA Industry Group Leader Larry Convoy
CMA Industry Group Leader Larry Convoy

However, this document of doom will now be turned into an excellent prospect list for any industry credit group (ICG). Whenever you post an alert of a Chapter 11 in your industry, CMA will run a list of the top 20 creditors. These companies could be competitors of yours, or they are at least selling into the same market as you and have just taken what could be a major hit. A phone call from a group member informing them about the group, and mentioning that the group was aware of the problem and therefore had minimal exposure, could get the group a new member very easily.

Therefore, effective with the next Chapter 11 alert posted on anscers, the ICG department will forward this list of names to the group chairmen and group facilitator. There will probably be some banks, factors or lending companies that would not fit but you should be able to identify some HOT prospects. Tell them that the best way to avoid the next BK is through membership in your credit group.

Thank you for your support throughout 2014, and we wish you and your family a Happy and Healthy Holiday Season and a Prosperous 2015.

Larry Convoy
Lead Group Facilitator
lconvoy@emailcma.org