Credit unions are being advised to pursue lending to credit-challenged members to boost loan growth.
Brett Christensen, a principal at CU Lending Advice LLC, said in an interview last week that credit unions must learn how to lend to those with "sloppy" credit. It is easy for credit unions to get more cautious as they get bigger, he said.
"That won't help grow loans," he said. "Lending is a judgment business. It can be done for members with 478 FICO scores under certain circumstances."
Christensen noted that margins are very thin for the best loans but that "serious money" can be made on loans to those with lower credit scores. Members with bad credit still need cars to get to work, he said, and people with bad credit can opt to make payments on time.
He wished "good luck" to credit unions that chase the best credits, noting that Bank of America Corp. can use its size to compete on price. Instead, he urged credit unions to realize that charging higher rates to members with worse credit is not "evil," since losses will occur and high rates can cover those losses.
"A lender evaluates risk and makes good loans," he said. "The C/D/E people always have a negative on their application, but many times the positives outweigh the negatives."