Are we optimizing score codes to drive the interview?
In a time of unprecedented inflation, it is critical for lenders, interviewers, and loan officers to identify a problem before anyone else, especially before your members. The art of interviewing and subsequent strong loan decisions resides in these pesky but prominent three-digit score codes listed on the credit report. It is important to understand what these codes are telling us and how they should drive most of the interviewers’ conversations with your members. If they are not being utilized, when your loan underperforms, who do we really have to blame? This article will introduce you to the method of the score code interview and how to get the rest of the story.
There is nothing more endearing than helping as many members as possible. Regardless of what scoring model you have chosen; these codes will guide you down a path where you do not add to a problem but where can help your member out of a problem. Every model has these codes, yet some models have better interview codes than others. To maximize this concept, I suggest using a trended scoring model that takes score code interviewing to a whole new level.
Understanding score codes is a critical step in strong interviewing skills, as well as decision making abilities. Most score codes have descriptions with key words in them such as too much, time since, or not enough over time. Let’s break down these critical concepts:
Too much, proportion of balances to credit limits is too high: These codes relate to the lack of available capacity on open-ended loan types. Remember, capacity is king. Quite often high utilization may indicate inflating one’s income on credit or “borrowing from Peter to pay Paul.” Most credit reports will indicate the percentage of one’s credit they have utilized. Reducing credit utilization is also the quickest way to drive up your member’s score. Interview questions should include asking the member if they pay more than the minimum on their credit cards monthly, and if so, how much? In addition, what were the balances on their cards six months ago? What were the balances on the cards twelve months ago? If they have increased, why? What happened?
Time since: These codes tell you there has been little time elapsed since the consumers most recent opening. Accelerated debt patterns may be the most crucial element of the interview yet is often overlooked. Why is the consumer opening new trades? What was the purpose of the new debt? Is there evidence of a budget problem or low amount to live on? Time codes can also guide us in identifying if the consumer has started to pay down debt on their installment loans yet. Is it possible the new payments are going to creep up on them? I recommend the total debt to high credit utilization percentage on the credit report be analyzed. This ratio will indicate if the debts are new and if there is little time elapsing between opening new accounts. Many credit report formats will provide this key ratio; however, this is something that is not being utilized during the interview.
Not enough over time: These codes will only appear on a trended scoring model credit report, but there is tremendous value to these codes. They tell us if the consumer is making only minimum payments on revolving accounts or if they have broken their assumed amortization schedule. Did the consumer take cash out or modify their mortgage? What specifically was the cash out used for? Did the consumer do skip-a-pay on their auto loan? If so, why were they motivated to extend their loan? Are they on a tight budget? Does the request for a new auto with a higher payment make sense if they have actively done skip-a-pays in the past? Do debt consolidation loans make sense when there is evidence the member is only making minimum payments and not trying to reduce debts on their own?
In my experience when reviewing credit union loans for non-performing trends, the above codes would have always identified the problem, yet they were constantly being missed. The interviewer should have asked questions about high utilizations, amortization breaks, or new spending patterns. When credit unions ask me how to get more out of the interview, the answer is simple, score codes. Score codes are successful at alerting interviewers where their line of questioning needs to be directed. The discussion points above will have a much greater impact on your loan portfolio quality than asking about delinquency on a retail card or about medical collections. The score code interview is a critical tool in staying one step ahead. It is my experience that struggling members wish someone would have said something before things went too far for them. Was there a way to fix things before there was a catastrophic impact on a family, causing them years of rebuilding their credit?
If you’re not using score codes for the interview, you may be missing out on an opportunity to help your most vulnerable members. Focus on the interview and continue to be there for your members. How many members can we help by understanding their needs, valuing their business and finding a solution? The answer is in the codes.
