CLEARWATER, Fla.-The rising number of bankruptcies from members with good credit has one card processor recommending adding a bankruptcy index score when managing credit card portfolio risk.
Bill Lehman, VP of portfolio consulting services for Card Services for Credit Unions, said that adding a bankruptcy predictor into the overall credit assessment allows CUs to be more "proactive and work with members who have the propensity to file bankruptcy. It allows you to adjust your collection techniques. In other words, with members who are high risk, you might contact them earlier, maybe ten days after they are delinquent."
Lehman pointed out that credit scores don't effectively recognize if members are paying late. "All of a sudden you are paying late, your revolving credit is too high, and you're starting to get loans from financial services companies. The bankruptcy score picks up that information."
Philip Elwyn, VP-sales for Equifax, Atlanta, said having a better understanding of borrowers' propensity to file bankruptcy allows the credit union to manage card risk on the "front or back end. You may adjust your collection polices for certain members, and if they go 30 days past due, you shut down the card."
The same approach can be taken when risky members go over their credit card limits. "If they have a low bankruptcy score, you don't approve that transaction," Elwyn suggested.
Elwyn said adding in a bankruptcy index provides a clear picture of an individual's overall financial health. "The credit score may not totally weigh all of the debt a consumer has. If they've always paid on time, they might have a relatively high credit score. Comparatively, if they have a lot of debt, they may have a low bankruptcy score."
Bankruptcy Navigator is Equifax's proprietary product, and pricing is based on transaction level, said Elwyn, who declined to share more pricing details. Scores range from 0-300.
