Portfolio Scoring Common Uses
Risk-based Pricing
A major bank scored a portfolio of approximately 500,000 merchant accounts using Experian Intelliscore Plus and requested Experian to return only high risk accounts that scored below 32. The bank applied Portfolio Scoring data on each account, in conjunction with their own internal score, to identify high risk merchants. The bank could then justify increased fees to these merchants. The bank found that their internal scoring system captured only 60% of their high risk merchants because the data sets were not comprehensive enough to measure further. The bank estimated that the addition of Experian's Portfolio Scoring data to their process will provide $1.1 million to $1.6 million in additional revenue the first year.
Furthermore, this same bank uses Portfolio Scoring data to drive interest rate changes. Good customers are rewarded with lower interest rates and customers who have recently exhibited greater risk are issued a rate increase. The increase of risk exposure is offset with additional interest income on one hand and heightened customer satisfaction on the other with low risk, loyal customers.
Identifying Revenue Opportunities
A major bank uses Portfolio Scoring to grow revenue by making attractive offers to inactive accounts with good scores. These “bring-back” customers represent minimal credit risk so can be solicited without reservations.
A large office equipment manufacture also scores their inactive accounts to target low-risk prospects for new pre-approved loan offers.
Calculation of Cash Reserves
A major bank uses Portfolio Scoring to help calculate cash reserves. Small Business Intelliscore proved to be highly predictive on the bank's portfolio for purposes of helping them calculate expected cash flow that would be absent based on predicted delinquency. This helped them determine appropriate reserves required to meet federal guidelines.
Credit Loss Forecasting
A major office equipment manufacturer uses Portfolio Scoring data in the development of their credit loss forecasting. Since the Experian Intelliscore predicts the chances of delinquency in the next 12 months, the score and other Portfolio Scoring information are combined with the company's internal data to forecast future losses.
Audit Response
A major bank used Portfolio Scoring data for their SBA audit. It helped them demonstrate the use of a process that provides strong due diligence and consistency when making decisions on SBA loan accounts and helped them validate the decisions made.
Evaluating Customers on an Acquisition
A large industrial supply company acquires companies on a frequent basis. As part of their due diligence, they routinely run Portfolio Scoring on the company's customer base to evaluate risk levels and to project future profits from these accounts. They find Portfolio Scoring to be a good practice whenever a new group of customers is added to their portfolio so they have a foundation upon which to measure future performance using the same rules that are applied to existing customers.
Risk-based Collection Prioritization
A large industrial supply company uses Portfolio Scoring data to prioritize their collection efforts by risk category, not delinquency. Rather than calling on accounts 90-days late, then 60-days late, and so forth, they use Experian scores to associate risk value to each delinquent customer. Changing from an aging-based collection prioritization to a risk-based method has made a significant improvement and helped them reduce DSO by nine days.
Credit Line Adjustment
A major bank uses the information provided by Portfolio Scoring to drive credit line decisions on their customers. By increasing credit lines on accounts that score well, the bank is able to generate incremental revenue. Conversely, on accounts that score poorly, credit lines are reduced to reduce risk exposure.
Other common uses for Portfolio Scoring are: Credit Policy Adjustments & Periodic Account Reviews.