Newspaper article The Florida Times Union

Bank of America Executive Deciphers the Numbers

Newspaper article The Florida Times Union

Bank of America Executive Deciphers the Numbers

Article excerpt

As a senior executive concerned about managing risk when lending to consumers, Jim Allen, senior vice president at Bank of America Consumer Finance Group , wants to know the odds of a borrower going 90 days past due on a loan payment over the next 24 months.

To determine those odds, Allen relies on statistical formulas that allow him to see how a group of other customers with the same financial profile as the would-be borrower handle credit.

The bet Bank of America makes is that the borrower will likely behave the same way as the others.

The process of analyzing borrower information is called credit scoring.

Allen makes use of scored information from credit bureaus and of scored information developed from the company's own files and processed through models developed both by itself and by Fair, Isaac and Co., a pioneer in the development of scoring formulas.

Since scores typically reflect a number of different factors, rather than one deal killer, lenders pay attention to factors that the data indicate correlate to potential problems.

Allen is particularly interested in how much experience the borrower has in managing credit, since a lot of experience leaves a track record that can be scored. Lenders hate an information void: It means the borrower is an unknown quantity, and the unknown is, by definition, risky.

The next big item Bank of America pays attention to is to what extent the borrower is out there searching for credit, said Allen.

"Every time a lender accesses a consumer's file, it generates a ticker called an inquiry on the credit file, and the more inquiries you see on a consumer's credit file, the riskier they are. They are out searching for credit," said Allen.

So be careful about casually filling in those card applications on the Web, or those department store credit card applications.

"Every time you do that, that lender is generating an entry into your credit file," said Allen. …

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