ELGIN, Ill.-Lending Solutions, Inc. is reporting it has developed a new credit-decision model that more accurately projects a potential borrower's financial condition almost a year down the road.
"Our model takes a very deep look at a member's total financial situation, much deeper than what Fair Isaac does, and that allows us to fast-forward about nine months and see what the picture will be," said Rex Johnson, CEO and founder of Lending Solutions, Inc.
Called High Yield Lending Strategy (HYLS), the online tool hosted by LSI is used by loan officers and works off a traditional credit score. It asks a series of 27 questions about a member's finances - including entering the person's credit bureau score - and then recalculates to show a new score that more accurately reflects the individual's ability to repay now and in the future, Johnson explained. "Fair Isaac does not look at your assets or your stability, for example," Johnson said. "You can't say those things are not important. We don't think Fair Isaac, while good, goes nearly far enough"
Some of the critical areas HYLS takes into account are: secured and unsecured debt as a percentage of gross annual income, how long individuals have been at a job and living at the same address, dollar amount on deposit at the CU, direct deposit, and length of credit union membership. "We believe the stronger the relationship you have with someone the greater the likelihood that when they have to choose who they can pay, they will choose you... You need to know the direction the member is heading in."
Detecting Inaccurate Data
Johnson said HYLS is especially good at identifying inaccurate income data. "If people are living off inflated income, it will be reflected in a lower final score." If a score drops, that is a strong indication that there is some trouble ahead, Johnson added.
HYLS delivers a final scorecard that, in addition to an adjusted credit score, shares three positive and three negative aspects of a borrower's credit. According to Johnson, that helps the CU focus on areas that need attention.
He said the entire process, which takes about three minutes to complete after gaining experience with the tool, makes loan officers "take a complete application. It forces them to find out how much equity someone has in their house. It forces them to develop the income and make sure they have it right, etc. They cannot complete HYLS unless they have done a good job on the front end collecting all the data."
Johnson said HYLS works not only to detect problems, but to reveal opportunities, such as members who have a low FICO score but possess attributes that make them a good risk.
"The positive factors can offset the negative. For example, the negative factors are the person has too many maxed-out credit cards and is living on inflated income. But he's always paid the car loan, is putting 20% down with trade-in, is taking a reasonably short term, and has direct deposit."
LSI introduced HYLS in late summer and 150 CUs are using it, Johnson said. Currently there is no charge for the service that is receiving over 1,000 hits a day, but plans are to charge $1 per loan application.
