Credit risk management technology boosts approval rates


The defi Team defi INSIGHT, Originations

Credit risk management technology boosts approval rates

Regardless of the economic climate, risk management remains an important factor for lenders to consider during the approval process. Shifting events that influence the global economy, however – like political uncertainty and warring nations – have made credit risk management a more powerful component than ever for the lending industry.

Luckily, there are advanced credit risk management technologies and services that banks, credit unions, and fincos can employ to obtain a better understanding of an applicant’s financial position and boost approval rates without increasing risk. 

Advanced Credit Risk Management Technologies
Tool Function
Trended Credit Data Analyzes a borrower’s credit card charges and payment history over a 12- to 24-month period to reveal their current financial position and how it influences perceived creditworthiness.
Automation Streamlines and automates routine credit risk management processes to improve efficiency and reduce errors.
Regulatory Technology Implements regulatory technology to ensure compliance with regulations and standards in credit risk management.

Some of the savviest lenders are realizing that trended credit data, automation, and regulatory technology can deliver substantial, quantifiable benefits, particularly in risk management.

Credit Risk Management Technology and Trended Credit Data 

symbol depicting trending data

While a traditional credit score condenses a lot of consumer information into a single number, it doesn’t always provide the most accurate or current assessment of a borrower’s financial standing. Lenders are beginning to realize that additional relevant consumer data can better equip them to assess credit risk. 

Trended credit data provides as much as a two-year window into a borrower’s credit card charges and payment history. Analyzing these trends over 12 to 24 months can reveal an applicant’s current financial position and its effect on perceived creditworthiness. In light of the many challenges of assessing an applicant’s current financial strength, trended credit data may be one of the more practical credit risk management technologies to explore. To better illustrate how trended credit data can benefit lenders, we offer three scenarios below:

How Trended Data Can Benefit Lenders: 3 Scenarios
Charges and Payments Trend  Effect on Creditworthiness 
Improving: Increasing monthly charges with full payments made each month. Offer applicants better terms than indicated by traditional credit scores alone.
Unchanged: Consistent monthly charges with full payments made each month. Offer applicants terms based on traditional credit score.
Declining: Increasing debt with missed or partial payments each month. Depending on credit score, offer applicants risk-adjusted terms or issue adverse action.

Lenders that incorporate trended credit data into their credit risk management methodology can boost approval rates by offering applicants with good credit scores more competitive terms and credit payments that demonstrate improving financial strength. At the same time, trended credit data allows lenders to decline applicants whose credit score and credit trends together indicate unacceptable risk.

Credit Risk Management Automation

symbol depicting machine learning

Automation can improve how banks and other financial groups manage lending risks. Banks can process more information faster using automated systems, enabling quicker and better credit risk assessments. 

Here are a  few key ways automation helps credit risk management:

  • Efficiency and Speed: Automated systems can quickly digest data to assess risk, which means quicker decisions on loan applications.   
  • Consistency: Automated systems ensure consistent policies without human error or bias impacting choices, ensuring rules are applied evenly. 
  • Scalability: As more people apply for loans and credit cards, automated processes can more easily handle higher volumes than manual processes. That flexibility matters when managing risk in an expanding financial environment.  
  • Cost Reduction: Automation saves money by reducing reliance on manual labor for routine tasks. 
  • Real-time Monitoring: Automated tracking of loan portfolios enables banks to see and respond to new risks, improving credit risk management overall. 
  • Compliance Management: Automated tools can help banks and other financial institutions comply with laws and regulations, reducing the risk of lawsuits and regulatory fees. 
  • Fraud Detection: Identifying fraudulent transactions is essential for today’s lending institutions. Automation can assist by flagging suspicious behaviors and transactions.   

Ultimately, automation enables faster, more reliable, and data-informed decisions about credit risks and loan applications.

Don’t Pursue Lending Efficiency Without Improving Risk Management

There’s no denying that technology continues to improve efficiency for nearly every aspect of the lending process, from mobile loan or lease originations to servicing. An equally important factor in lending efficiency is credit risk management. No amount of increased efficiency can compensate for credit decisions that result in defaults. Lenders who employ technologies to improve processes like workflow, decision rules, and auto-structuring to make their lending more efficient should also invest in credit risk management technology that boosts approvals without increasing risk.

Getting Started

defi SOLUTIONS is redefining loan origination with software solutions and services that enable lenders to automate, streamline, and deliver on their complete end-to-end lending lifecycle. Borrowers want a quick turnaround on their loan applications, and lenders want quick decisions that satisfy borrowers and hold up under scrutiny. With defi ORIGINATIONS, lenders can increase revenue and productivity through automation, configuration, and integrations and incorporate data and services that meet unique needs. For more information on loan application underwriting process improvements, contact our team today and learn how our cloud-based loan origination products can transform your business.

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