Models & Scores

Experian and Oliver Wyman have joined forces to launch Ascend CECL Forecaster to help financial institutions of all sizes forecast lifetime credit losses.

How well can you identify and rank your current customer population? Are you leveraging that insight to acquire new customers, manage current customers and prioritize collections efforts? If so, you’re probably using custom models in your business strategy. But if your organization is like many businesses, you may use a more traditional approach. In our highly competitive market, strategy and decisions must be based on the right data and insights. No excuses. The data is there, and we can help you turn it into actionable insights. Implementing a custom model can maximize your return on investment and help you make more profitable business decisions — now and in the future.

Alex Lintner, Group President at Experian, recently had the chance to sit down with Peter Renton, creator of the Lend Academy Podcast, to discuss alternative credit data,1 UltraFICO, Experian Boost and expanding the credit universe. Lintner spoke about why Experian is determined to be the leader in bringing alternative credit data to the forefront of the lending marketplace to drive greater access to credit for consumers. “To move the tens of millions of “invisible” or “thin file” consumers into the financial mainstream will take innovation, and alternative data is one of the ways which we can do that,” said Lintner. Many U.S. consumers do not have a credit history or enough record of borrowing to establish a credit score, making it difficult for them to obtain credit from mainstream financial institutions. To ease access to credit for these consumers, financial institutions have sought ways to both extend and improve the methods by which they evaluate borrowers’ risk. By leveraging machine learning and alternative data products, like Experian BoostTM, lenders can get a more complete view into a consumer’s creditworthiness, allowing them to make better decisions and consumers to more easily access financial opportunities. Highlights include: The impact of Experian Boost on consumers’ credit scores Experian’s take on the state of the American consumer today Leveraging machine learning in the development of credit scores Expanding the marketable universe Listen now Learn more about alternative credit data 1When we refer to "Alternative Credit Data," this refers to the use of alternative data and its appropriate use in consumer credit lending decisions, as regulated by the Fair Credit Reporting Act. Hence, the term "Expanded FCRA Data" may also apply in this instance and both can be used interchangeably.

Once you have kids, your bank accounts will never be the same. From child care to college, American parents spend, on average, over $233,000 raising a child from birth through age 17. While moms and dads are facing the same pile of bills, they often don’t see eye to eye on financial matters. In lieu of Father’s Day, where spending falls $8 million behind Mother’s Day (sorry dads!), we’re breaking down the different spending habits of each parent: Who pays the bills? With 80% of mothers working full time, the days of traditional gender roles are behind us. As both parents share the task of caring for the children, they also both take on the burden of paying household bills. According to Pew Research, when asked to name their kids’ main financial provider, 45% of parents agreed they split the role equally. Many partners are finding it more logical to evenly contribute to shared joint expenses to avoid fighting over finances. However, others feel costs should be divvied up according to how much each partner makes. What do they splurge on? While most parents agree that they rarely spend money on themselves, splurge items between moms and dads differ. When they do indulge, moms often purchase clothes, meals out and beauty treatments. Dads, on the other hand, are more likely to binge on gadgets and entertainment. According to a recent survey on millennial dads, there’s a strong correlation between the domestic tasks they’re taking on and how they’re spending their money. For instance, most dads are involved in buying their children’s books, toys and electronics, as well as footing the bill for their leisure activities. Who are they more likely to spend on? No parent wants to admit favoritism. However, research from the Journal of Consumer Psychology found that you’re more likely to spend money on your daughter if you’re a woman and more likely to spend on your son if you’re a man. The suggested reasoning behind this is that women can more easily identify with their daughters and men with their sons. Overall, parents today are spending more on their children than previous generations as the cost of having children in the U.S. has exponentially grown. How are they spending? When it comes to money management both moms and dads claim to be the “saver” and label the other as the “spender.” However, according to Experian research, there are financial health gaps between men and women, specifically when it pertains to credit. For example, women have 11% less average debt than men, a higher average VantageScore® credit score and the same revolving debt utilization of 30%. Even with more credit cards, women have fewer overall debts and are managing to pay those debts on time. There’s no definite way to say whether moms are spending “better” than dads, or vice versa. Rather, each parent has their own strengths and weaknesses when it comes to allocating money and managing expenses.

Financial institutions preparing for the launch of the Financial Accounting Standard Board’s (FASB) new current expected credit loss model, or CECL, may have concerns when it comes to preparedness, implications and overall impact. Gavin Harding, Experian’s Senior Business Consultant and Jose Tagunicar, Director of Product Management, tackled some of the tough questions posed by the new accounting standard. Check out what they had to say: Q: How can financial institutions begin the CECL transition process? JT: To prepare for the CECL transition process, companies should conduct an operational readiness review, which includes: Analyzing your data for existing gaps. Determining important milestones and preparing for implementation with a detailed roadmap. Running different loss methods to compare results. Once losses are calculated, you’ll want to select the best methodology based on your portfolio. Q: What is required to comply with CECL? GH: Complying with CECL may require financial institutions to gather, store and calculate more data than before. To satisfy CECL requirements, financial institutions will need to focus on end-to-end management, determine estimation approaches that will produce reasonable and supportable forecasts and automate their technology and platforms. Additionally, well-documented CECL estimations will require integrated workflows and incremental governance. Q: What should organizations look for in a partner that assists in measuring expected credit losses under CECL? GH: It’s expected that many financial institutions will use third-party vendors to help them implement CECL. Third-party solutions can help institutions prepare for the organization and operation implications by developing an effective data strategy plan and quantifying the impact of various forecasted conditions. The right third-party partner will deliver an integrated framework that empowers clients to optimize their data, enhance their modeling expertise and ensure policies and procedures supporting model governance are regulatory compliant. Q: What is CECL’s impact on financial institutions? How does the impact for credit unions/smaller lenders differ (if at all)? GH: CECL will have a significant effect on financial institutions’ accounting, modeling and forecasting. It also heavily impacts their allowance for credit losses and financial statements. Financial institutions must educate their investors and shareholders about how CECL-driven disclosure and reporting changes could potentially alter their bottom line. CECL’s requirements entail data that most credit unions and smaller lenders haven’t been actively storing and saving, leaving them with historical data that may not have been recorded or will be inaccessible when it’s needed for a CECL calculation. Q: How can Experian help with CECL compliance? JT: At Experian, we have one simple goal in mind when it comes to CECL compliance: how can we make it easier for our clients? Our Ascend CECL ForecasterTM, in partnership with Oliver Wyman, allows our clients to create CECL forecasts in a fraction of the time it normally takes, using a simple, configurable application that accurately predicts expected losses. The Ascend CECL Forecaster enables you to: Fulfill data requirements: We don’t ask you to gather, prepare or submit any data. The application is comprised of Experian’s extensive historical data, delivered via the Ascend Technology PlatformTM, economic data from Oxford Economics, as well as the auto and home valuation data needed to generate CECL forecasts for each unsecured and secured lending product in your portfolio. Leverage innovative technology: The application uses advanced machine learning models built on 15 years of industry-leading credit data using high-quality Oliver Wyman loan level models. Simplify processes: One of the biggest challenges our clients face is the amount of time and analytical effort it takes to create one CECL forecast, much less several that can be compared for optimal results. With the Ascend CECL Forecaster, creating a forecast is a simple process that can be delivered quickly and accurately. Q: What are immediate next steps? JT: As mentioned, complying with CECL may require you to gather, store and calculate more data than before. Therefore, it’s important that companies act now to better prepare. Immediate next steps include: Establishing your loss forecast methodology: CECL will require a new methodology, making it essential to take advantage of advanced statistical techniques and third-party solutions. Making additional reserves available: It’s imperative to understand how CECL impacts both revenue and profit. According to some estimates, banks will need to increase their reserves by up to 50% to comply with CECL requirements. Preparing your board and investors: Make sure key stakeholders are aware of the potential costs and profit impacts that these changes will have on your bottom line. Speak with an expert

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