Leverage Alternative Credit Data During the COVID-19 Crisis!

Bill Bromback – Chief Research Officer

January 20, 2021

Due to the economic impacts created by COVID-19, many credit union members are suffering financially, not because they were careless or lack job skills. Rather, it’s the mandated closings of nonessential businesses that have eliminated jobs and income for so many. But as vaccines are developed and delivered, the general expectation is that many jobs will return. It’s just a question of time!

This environment creates a unique challenge for credit unions regarding the management of their loan portfolios. A delicate balance needs to be struck between minimizing financial impact (loan losses) and maintaining member satisfaction/loyalty.

To help find that balance, obtaining more information about your members’ financial conditions will be valuable. Of course, there are the traditional methods of gaining more insights such as analyzing credit migration or conducting personal outreach campaigns, but another approach might be to leverage alternative credit data.

In fact, in “2020 State of Alternative Credit Data,” Experian explains that using data can be especially useful as lenders navigate risk following the Coronavirus shutdown, because the economic environment changed so rapidly.

In the face of financial stress, Experian wrote, the adoption of alternative credit data allows lenders to more easily identify borrowers most likely to miss payments, better predict future behavior and, in turn, apply the most effective hardship treatment option. It means knowing whether a deferment or loan restructure is the best option. This targeted engagement is specific to each borrower, and ensures a collection process that is individualized, efficient and fair.”

Implementing a collection strategy using alternative credit data and advanced analytical techniques produces a cost-effective, compliant process that not only reduces losses and improves collection rates, but also retains valuable customers,” Experian concluded.

When the future seems unclear, alternative data paves the way for credit unions to lead their members through difficult times with products and services that compete effectively in today’s market while retaining member trust and loyalty.