Dear Hilary – Credit Score Pulls
June 2017

Dear Hilary,

We are trying to decide how often we will pull updated credit scores. What is recommended? What are your other clients doing?

Credit Score Questioner


Dear Credit Score Questioner,

Deciding on how often to pull credit scores is a matter of balancing cost and high quality reporting. In turn, this will also assist in having:

  1. More complete credit score migration
  2. More accurate expected loss by probability of default reporting
  3. More insight into monitoring lines of credit in Visible Equity

The credit score migration report compares the score at the original of the loan to the updated score. It is normal to see loans included in the percentage with no migration, because newly originated loans will not have an updated score. If you are pulling updated credit scores once a year, you will see a higher percentage of loans with no migration than if you were to pull more frequently. Thus, the benefit of pulling more than once a year is that you will not have to wait a year to have migration on loans originated since the last pull.

For example, if you were to have just pulled scores in January, loans originated after the pull will not have credit score migration until a second score is pulled. If you are pulling scores annually, this loan will not show migration until your next pull in January 2016. The exception to this would be if your institution finances a second loan for this borrower sometime during 2015. Since the credit score is linked to the borrower, the original score on the new loan will score as an updated score on the previous.

The Probability of Delinquency method uses a proprietary regression model that analyzes the influence of several variables, including credit score. Thus, having an accurate probability of default model depends upon having updated credit score. Pulling frequent updated credit score is also crucial for reviewing lines of credit. Many of our clients do quarterly reviews to watch for individuals whose credit score has significantly dropped so they can reduce their credit limit amount before loss is incurred. If you are not pulling credit scores, you have no idea what is going on with your lines of credit!

How often does our team at Visible Equity recommend your institution pull credit scores? If you want to have more accurate probability of default reporting and better data when reviewing lines of credit, you will want to move to a minimum of semi-annual or preferably quarterly pulls. We find most of our clients have now moved to pulling more than once a year. If you are not already pulling scores or would like to pull more frequently, let us know, and we will help you get that started!

Have a wonderful weekend!

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