LAS VEGAS - Credit scores, a staple tool of loan originators, are gaining in popularity among debt collectors, who use them to select the most cost-effective strategy and to determine which customers are most likely to repay, executives said.
Karen Bowen, the director of client and regulatory relations at Fair Isaac Corp., said scoring models "allow you to recognize who your best customers really are … [and] connect the back end to the front end of your operations."
In addition, companies must educate their employees to handle consumers who are becoming savvier about their debt burdens, Ms. Bowen said Tuesday at the Collections and Credit Risk conference sponsored by Source Media, the parent company of American Banker.
Consumers "understand the products that are available to them and are demanding better rates," she said. "The organizations that embrace this new knowledge will be the most profitable organizations in the future."
To address the need for more sophisticated collections scoring models, the Chicago credit bureau TransUnion LLC announced the development of four models Monday. Three of the models are industry-specific; they cater to companies collecting on bank and retail card debt, auto loans, or medical loans. The fourth model is designed for wide application.
TransUnion developed the models with the help of nine debt buyers of various sizes and specialties, who supplied the actual data.
Michael Kiyosaki, TransUnion's executive vice president of analytic decision services, said the models are the first industry-specific ones built from actual data to go on the market.
"Over the past three to five years collection agencies have started to get more savvy and aggressive," he said in an interview. "We are just starting to push awareness on what we can offer the industry."
Scoring models usually have minimum criteria an account must meet to be scored. The new models have broader criteria than most, so more accounts can be scored, Mr. Kiyosaki said.
The credit card and wide-application models are available immediately. TransUnion expects its card model to be the best seller among the four.
But medical debt is "very hot," Mr. Kiyosaki said. TransUnion's medical and auto recovery models will be available in 30 days, he said.
Experian Inc. is close on its competitor's heels. The Costa Mesa, Calif., credit bureau has started to beef up its product line, particularly in areas where TransUnion has made some headway.
David Elmore, a senior account executive at Experian, said he moved from Chicago to California a year ago to take market share from TransUnion in the state.
Experian offers the Collection Advantage recovery model, which generates scores that can be used by collectors or by buyers of charged-off debt looking to evaluate portfolios before making a purchase. The model can be customized to meet industry-specific needs, according to Experian.
Both bureaus tout their access to consumer information as advantages in the scoring model market.
Buyers of charged-off debt have also developed analytic models to more effectively manage and draw revenue from their portfolios.
Al Brothers, an executive vice president at the Hawthorne, N.Y., debt buyer Cavalry Investments LLC, said it has expanded over the past five years largely because of its credit scoring capabilities.
"You're only going to be collecting money from a relatively small number of your accounts, so it's important to identify those accounts that are most likely to pay you," he said at Tuesday's conference.
Cavalry has developed an internal scoring model that looks at an account's credit score and history, as well as the customer's behavior, Mr. Brothers said.
"We feel that it's a very important tool in managing collections," he said.
Cavalry also uses analytics to determine the effectiveness of mail campaigns and to determine the attractiveness of potential portfolios, Mr. Brothers said.
Tom Ferris, the founder of the San Diego debt buyer Sagres Co., agreed that scoring is very popular in the collections industry. But he warned that the more established scoring models used by various industries for loan originations cannot simply be transferred to the collections process.
"I'm an anti-scoring guy," he said in an interview. "These huge models work on the origination side but are more difficult to use on the back end."
Mr. Kiyosaki agreed that most of the collections industry is still "relatively unsophisticated" when it comes to scoring models.
