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BEACON 09 Auto Industry Option
CONSUMER INFORMATION SOLUTIONS
Equifax and BEACON are registered trademarks of Equifax Inc. Inform, Enrich, Empoweris a trademark of Equifax Inc. FICO is a registered trademark of Fair Isaac Corporation.Copyright © 2009, Equifax Inc., Atlanta, Georgia. All rights reserved.
EFS-913-ADV—5/09
Optimizing Risk Management for Auto Finance Lenders
As we all know, consumers place varying priorities on their loan obligations. The BEACON® 09 Auto Industry Option — developed by FICOTM using anational sample from Equifax's database — considers this in helping you to gauge risk.
The BEACON 09 Auto Industry Option adjusts the BEACON 09 credit risk assessment score, adding or subtracting points according to predictiveinformation specific to the auto loan industry. What does this mean to you? It means you receive all the proven credit risk assessment benefits ofBEACON 09 — predicting the relative likelihood that credit applicants, prospects and existing customers will satisfactorily repay their credit obligationsover the next 24 months — designed especially for auto finance lending. As a result, you can make credit decisions with confidence, while furtherlimiting risk.
How the Auto Industry Option Was DevelopedBEACON 09 was used as the foundation to develop the BEACON 09 Auto Industry Option. Hundreds of credit file characteristics were compared withauto loan performance records to identify the degree of "bad" behavior (90+ days past due on that industry tradeline) over the span of 24 monthsrelative to "good" behavior. Bankruptcy, from any industry, is also classified as "bad."
How It WorksThe Auto Industry Option combines multiple scorecard technology with the most predictive credit payment characteristics for auto loan performance.
The consumer’s credit report is reviewed, and depending upon the contents, is sent to the most appropriate BEACON 09 scorecard. After the BEACON09 score is calculated, the report is reviewed again to be sent to one of two more auto option scorecards. If there is delinquency or other derogatoryinformation, it goes to a delinquency scorecard for scoring. If not, it goes to a non-delinquency scorecard.
[ over ]
April 2006
Equifax Consumer Credit DatabaseInformation + BEACON 09 Score
Performance Information based onworst performance on any auto loan or
bankruptcy on any tradeline
April 2008
Observation Date
AUTO INDUSTRY OPTION DEVELOPMENT
24-Month Performance Outcome PeriodPerformance Date
Fine-tuning Interval Score Distributions
The Auto Industry Option broadens the distribution outward to both higher and lower score ranges, providing opportunities to identify the best customers.
You will need to evaluate the Auto Industry Option’s performance on your own portfolio before deciding where to make necessary score strategychanges to minimize losses.
How You Can Use It The Auto Industry Option gives you the heightened ability to separate future paid-as-agreed loans from potential delinquencies, repossessions and/orbankruptcies. This increased precision helps you:
• Decline more potential high-risk applicants at the same approval rate while reducing your future loss rate.
• Approve more low-risk applicants while maintaining the same loss rate.
• Segment accounts for more effective risk-based pricing. Also, the option works equally well for prescreening, new account approvals and accountmanagement.
Easy to Implement It’s easy to incorporate the Auto Industry Option into your current operating environment.
• If you are only converting from the BEACON 5.0 Auto Industry Option to the BEACON 09 Auto Industry Option, no additional programming is required.
• If you are converting to the BEACON 09 Auto Industry Option from any other versions of BEACON, then System-to-System and PC users need toprogram a few additional reason codes so their systems can return these explanations for adverse action notification procedures.
Get the Strongest Risk Mitigation for Auto Lending Isn’t it time to elevate your risk assessment capabilities? Get the increased predictive power of the BEACON 09 Auto Industry Option — optimized riskassessment designed specifically for auto lending. For more information, call your Equifax representative, or 1-800-685-5000, or visit us online atwww.equifax.com today.
Optimizing Risk Protection for Auto Loans
Based on a national sample of consumers with auto loans, the Auto Industry Option identified 56% of all 90+ delinquencies within the lowest-scoring 10% of scored files
with good performance, compared to 54% with BEACON 09.
There also is an upward shift in higher scores and a downward score shift of the “bads” population, further segmenting credit risk.
The Auto Industry Option is aligned to reflect similar odds of “good” to “bad” performance as BEACON 09. This means that the Auto Industry Optionprovides the same odds of “good” to “bad” auto loan performance at a given score range as a BEACON 09 score range. For example, the same creditreport could score 710 using the Auto Industry Option and 680 using BEACON 09. An Auto Industry Option score of 710 would indicate the samedegree of risk as a 710 produced from the BEACON 09 score. Scores range from 250 to 900 – the higher the score, the lower the potential for seriousdelinquency.
Why It’s More PredictiveWhen you score auto loan performance data as compared to general credit performance data, some unique things happen. At any given percentage ofaccounts with good performance, the Auto Industry Option identifies a higher percentage of future delinquencies than BEACON 09.
12 BEACON 09 Scorecards: Eight Non-derog; Four Derog
BEACON 09 Two Industry Overlay Scorecards: One derog; One Non-derog
Industry AdjusterBEACON 09 Score + Industry Adjuster = Industry Option Score
The result . . . precision scoring and a sophisticated yet simple way to achieve even more predictive power for auto loan decisioning.
BEACON 09 Auto Finance
BEACON 5.0 Auto Finance
BEACON 09
0
10
20
30
40
50
60
70
80
90
100
0 10 20 30 40 50 60
Cumulative % of Total Accounts
Cum
ulat
ive %
of 9
0+ A
ccou
nts
BEACON 09 Auto Finance
BEACON 5.0 Auto Finance
BEACON 09
BEACON 09 Auto FinanceBEACON 5.0 Auto Finance
BEACON 09
Better Identify More Likely DefaultsAll Existing Auto Loan Accounts
BEACON 09 Auto Finance vs. BEACON 5.0 Auto Finance
4% improvement
680 -699
700 -719
720 -739
740 -759
760 -779
780 -799
800 -819
820 -839
840+
0
2
4
6
8
10
12
14
16
18
< 500 500 -519
520 -539
540 -559
560 -579
580 -599
600 -619
620 -639
640 -659
660 -679
Score
Perc
ent
BEACON 09BEACON 5.0 - Auto BEACON 09 - Auto
Better Identify More Likely DefaultsAll Existing Auto Loan Accounts
BEACON 09 Auto Finance vs. BEACON 5.0 Auto Finance
Fine-tuning Interval Score Distributions
The Auto Industry Option broadens the distribution outward to both higher and lower score ranges, providing opportunities to identify the best customers.
You will need to evaluate the Auto Industry Option’s performance on your own portfolio before deciding where to make necessary score strategychanges to minimize losses.
How You Can Use It The Auto Industry Option gives you the heightened ability to separate future paid-as-agreed loans from potential delinquencies, repossessions and/orbankruptcies. This increased precision helps you:
• Decline more potential high-risk applicants at the same approval rate while reducing your future loss rate.
• Approve more low-risk applicants while maintaining the same loss rate.
• Segment accounts for more effective risk-based pricing. Also, the option works equally well for prescreening, new account approvals and accountmanagement.
Easy to Implement It’s easy to incorporate the Auto Industry Option into your current operating environment.
• If you are only converting from the BEACON 5.0 Auto Industry Option to the BEACON 09 Auto Industry Option, no additional programming is required.
• If you are converting to the BEACON 09 Auto Industry Option from any other versions of BEACON, then System-to-System and PC users need toprogram a few additional reason codes so their systems can return these explanations for adverse action notification procedures.
Get the Strongest Risk Mitigation for Auto Lending Isn’t it time to elevate your risk assessment capabilities? Get the increased predictive power of the BEACON 09 Auto Industry Option — optimized riskassessment designed specifically for auto lending. For more information, call your Equifax representative, or 1-800-879-1025, or visit us online atwww.equifax.com today.
Optimizing Risk Protection for Auto Loans
Based on a national sample of consumers with auto loans, the Auto Industry Option identified 56% of all 90+ delinquencies within the lowest-scoring 10% of scored files
with good performance, compared to 54% with BEACON 09.
There also is an upward shift in higher scores and a downward score shift of the “bads” population, further segmenting credit risk.
The Auto Industry Option is aligned to reflect similar odds of “good” to “bad” performance as BEACON 09. This means that the Auto Industry Optionprovides the same odds of “good” to “bad” auto loan performance at a given score range as a BEACON 09 score range. For example, the same creditreport could score 710 using the Auto Industry Option and 680 using BEACON 09. An Auto Industry Option score of 710 would indicate the samedegree of risk as a 710 produced from the BEACON 09 score. Scores range from 250 to 900 – the higher the score, the lower the potential for seriousdelinquency.
Why It’s More PredictiveWhen you score auto loan performance data as compared to general credit performance data, some unique things happen. At any given percentage ofaccounts with good performance, the Auto Industry Option identifies a higher percentage of future delinquencies than BEACON 09.
12 BEACON 09 Scorecards: Eight Non-derog; Four Derog
BEACON 09 Two Industry Overlay Scorecards: One derog; One Non-derog
Industry AdjusterBEACON 09 Score + Industry Adjuster = Industry Option Score
The result . . . precision scoring and a sophisticated yet simple way to achieve even more predictive power for auto loan decisioning.
BEACON 09 Auto Finance
BEACON 5.0 Auto Finance
BEACON 09
0
10
20
30
40
50
60
70
80
90
100
0 10 20 30 40 50 60
Cumulative % of Total Accounts
Cum
ulat
ive %
of 9
0+ A
ccou
nts
BEACON 09 Auto Finance
BEACON 5.0 Auto Finance
BEACON 09
BEACON 09 Auto FinanceBEACON 5.0 Auto Finance
BEACON 09
Better Identify More Likely DefaultsAll Existing Auto Loan Accounts
BEACON 09 Auto Finance vs. BEACON 5.0 Auto Finance
4% improvement
680 -699
700 -719
720 -739
740 -759
760 -779
780 -799
800 -819
820 -839
840+
0
2
4
6
8
10
12
14
16
18
< 500 500 -519
520 -539
540 -559
560 -579
580 -599
600 -619
620 -639
640 -659
660 -679
Score
Perc
ent
BEACON 09BEACON 5.0 - Auto BEACON 09 - Auto
Broadens Distribution to Identify Best CustomersAll Existing Auto Loan Accounts
BEACON 09 Auto Finance vs. BEACON 5.0 Auto Finance
BEACON 09 Auto Industry Option
CONSUMER INFORMATION SOLUTIONS
Equifax and BEACON are registered trademarks of Equifax Inc. Inform,Enrich, Empower is a trademark of Equifax Inc. FICO is a trademark ofFair Isaac Corporation. Copyright © 2009, Equifax Inc., Atlanta, Georgia.All rights reserved.
EFS-913-ADV—5/09
Optimizing Risk Management for Auto Finance Lenders
As we all know, consumers place varying priorities on their loan obligations. The BEACON® 09 Auto Industry Option — developed by FICOTM using anational sample for Equifax's database — considers this in helping you to gauge risk.
The BEACON 09 Auto Industry Option adjusts the BEACON 09 credit risk assessment score, adding or subtracting points according to predictiveinformation specific to the auto loan industry. What does this mean to you? It means you receive all the proven credit risk assessment benefits ofBEACON 09 — predicting the relative likelihood that credit applicants, prospects and existing customers will satisfactorily repay their credit obligationsover the next 24 months — designed especially for auto finance lending. As a result, you can make credit decisions with confidence, while furtherlimiting risk.
How the Auto Industry Option Was DevelopedBEACON 09 was used as the foundation to develop the BEACON 09 Auto Industry Option. Hundreds of credit file characteristics were compared withauto loan performance records to identify the degree of "bad" behavior (90+ days past due on that industry tradeline) over the span of 24 monthsrelative to "good" behavior. Bankruptcy, from any industry, is also classified as "bad."
How It WorksThe Auto Industry Option combines multiple scorecard technology with the most predictive credit payment characteristics for auto loan performance.
The consumer’s credit report is reviewed, and depending upon the contents, is sent to the most appropriate BEACON 09 scorecard. After the BEACON09 score is calculated, the report is reviewed again to be sent to one of two more auto option scorecards. If there is delinquency or other derogatoryinformation, it goes to a delinquency scorecard for scoring. If not, it goes to a non-delinquency scorecard.
[ over ]
April 2006
Equifax Consumer Credit DatabaseInformation + BEACON 09 Score
Performance Information based onworst performance on any auto loan or
bankruptcy on any tradeline
April 2008
Observation Date
AUTO INDUSTRY OPTION DEVELOPMENT
24-Month Performance Outcome PeriodPerformance Date
