It is a treasure trove of valuable information when the decision is in the balance. But, just like Indiana Jones trying to find his way to the Holy Grail, metaphorical spears emerge from the cave walls and floors collapse beneath him. In less dramatic terms, there are some significant obstacles en route to reaping the benefits of a multi-bureau strategy, and traps that are all too easy to fall into.
A series of pitfalls
The most significant of these challenges is the double-counting trap. In 2020, the major CRAs each reported coverage upwards of 70 per cent of UK adults, which leads to two conclusions:
1. Some CRAs have limited or no visibility on up to 30 per cent of the UK adult population (for some CRAs this number will be materially lower).
2. As there are three major CRAs, there will inevitably be duplication – after all, 3 x 70 per cent equals 210 per cent coverage.
So, to the uninitiated, a multi-bureau approach would begin with a lender searching one bureau, resulting in a thin file, before searching a second bureau to augment the data already obtained. The additional data shows more credit, but also restates some credit commitments from the first search, resulting in enough data to make a lending decision but duplicated credit commitments, which can potentially destroy the affordability calculation. The confusion and lack of clarity creates the need for a manual review or automatic decline, leading to higher costs and low conversions.
What is more, one of the biggest risks associated with this approach is of failing to treat customers fairly, a giant boulder thundering towards lenders whose only option is to try to outrun it, because while it is well accepted that customers should not be granted credit they cannot afford, it is also unfair to evaluate applicants based upon faulty affordability assessments.
Doubling up
Let us say that the first CRA returns details of a mortgage, two credit cards and two personal loans, but a second CRA returns the same mortgage, one credit card (also included in the first CRA search) and two personal loans (only one of which was included in the first CRA search).
The applicant therefore has one mortgage, two credit cards and a total of three personal loans, however, the combined searches show three credit cards and four personal loans. Unless this information is subjected to sophisticated analysis and robust deduplication, a lender may inadvertently double count the offending duplicated commitments and fail the affordability calculation, thus declining the application.
This is just one of thousands of examples of how multi-bureau strategies can deliver better underwriting decisions if used effectively, but can also create unintended consequences if not.
