Cute article on Credit Searches by Callcredit Head Honcho

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Credit Searches - Do They Make A Difference?

Ten years ago the number of credit
searches on a consumer’s credit record
was an important element of credit risk
assessment. High numbers of searches in
a short time period were often interpreted as
either potential over-commitment or
suspected fraudulent activity.
The ‘number of searches in the last six months’ at point
of application, for example, was a reasonably well weighted
characteristic in many
a lenders’ credit
scorecards albeit only
one of up to ten
or fifteen different
variables.
However, it has never
been an overriding
factor.
Take
a
customer with an
exemplary
credit
record who may have
registered a number
of credit searches
- it would have been
highly improbable that the customer would have been automatically
declined. A marginal case may have turned an ‘accept’ into a
‘decline’ but only as a result of the collective data in the scoring
algorithm and the fact that other factors such as poor payment
history made it a marginal case in the first instance.
Credit searches are still part of the overall assessment for a few
lenders but are less predictive than ever. The credit industry has
changed significantly in recent years along with consumer behaviour.
Far more credit searches are being registered, largely as a result
of the explosion in the mobile phone industry and the aggressive
marketing of credit card issuers.While not wanting to totally dismiss
the power of credit search data, it is clear that the value of this
information is becoming more and more diluted as the
frequency increases.
Another consideration is that more and more lenders are assessing
an individual’s credit commitments rather than their credit activity.
Is it more important, for example, to know that a consumer has
registered three searches in the last three months or that they have
increased their lending in that period by £4,000? Or that they are
now spending more than 50% of their income on servicing
unsecured debt? The number of accounts opened in the last six
months rather than the number of searches in the same period is
often seen as more predictive and of greater interest to lenders.
In these days of responsible lending and a £1.3 trillion consumer
debt mountain many lenders are augmenting their existing score-
based systems with affordability and indebtedness-based solutions.
Searches are becoming much less of a factor.
Mick Ellender is a Senior Business Consultant in Callcredit’s
Consultancy Team.