Improve Your Scoring Strategy with New Credit Reports

Dave Rudd

The Great Recession affected each of us. Many people lost their houses, their jobs and their ability to use credit to make purchases, big or small. Most businesses were impacted because either they or their clients were unable to obtain the credit to purchase needed items for business growth.  And certainly the debt collection industry has been hit as well. No money to pay their debts!

Personally, I’m not an advocate of holding large amounts of debt and I certainly don’t like the idea of living off of credit cards. However, I do recognize that credit is needed for some larger expenses: home, vehicles and perhaps some household appliances. I also recognize there are certain tasks in business you can’t accomplish without access to credit.

Recently I read the white paper “Credit Finding A New Way” published by MicroBilt. I already knew about our country’s recent credit issues, but MicroBilt’s white paper helped me better understand how the Great Recession exacerbated that credit problem. The paper explains that the current credit reporting system is based on the assumption that at some point everyone will want to buy something they can’t pay cash for—so they’re going to need and use credit which naturally builds a credit history.  “But today, not everyone utilizes traditional debt, and as many as 100 million Americans (approximately one-third of the population) may be underserved by the traditional credit system.”

Good credit scores from traditional credit bureaus—Equifax, Experian and TransUnion—are the key to obtaining any credit, which today is nearly impossible without already established credit (a definite chicken/egg problem). These credit reporting agencies generally don’t track and evaluate many other forms of so-called nontraditional credit: rent, utilities, magazine subscriptions, when bank accounts were established, etc.

Credit reporting for a changing society. An entirely new credit reporting industry is emerging that collects, tracks and reports on nontraditional credit, and not just bills connected to credit. Some of these businesses are PRBC (Payment Reporting Builds Credit), My Bank Tracker, Lexis Nexis, L2C, Corelogic, and the Census Bureau. It should be noted that the traditional credit bureaus are responding to this trend by starting to offer some nontraditional credit information.

What does this mean for the ARM industry? It appears that the time is right for ARM firms to incorporate nontraditional credit histories into their existing debtor scoring strategies. After scoring your accounts, create a dialing campaign to contact debtors with the most promising scores first. This allows you to focus on those who are most willing and prepared to pay their past due account. Contacting debtors that have a higher payment predictability score allows your company to operate more efficiently and profitably.

Keep your company focused on contacting the right accounts by utilizing nontraditional credit reporting. It’s becoming the tradition.