| Job Security Scores and Credit Bureau Scores |
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| Job Score predicts income risk i.e. future ability to pay |
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| Credit bureau scores do a good job of measuring what they are intended to measure—intrinsic risk based on an individual’s past behavior. However, looking at only this intrinsic risk factor as the basis for understanding customers captures only half the picture. |
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| The extrinsic factor affecting individual’s financial risk—the loss of their income due to job loss—is the increasingly essential factor in determining credit risk today. |
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Consumer Credit Risk = Intrinsic risk (Credit Score) + Extrinsic Risk (Job Score™) |
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Credit has been used for as long as interactions between people have taken place. Consumer credit has traditionally been regarded to have three components: Capital, Capacity, and Character (or Willingness). Use of credit bureau scores is based on the idea that a borrower’s past behavior is indicative of their future behavior. However, while this may hold for Capital and Willingness (two of the three components), previous capacity to meet financial obligations is not a reliable predictor of future capacity, especially with the risk of job loss lurking—a risk which is most often completely outside the control of the individual.
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| This is the missing piece of information that businesses gain when they use Job Security Score, because unemployment risk a large part of the credit risk equation. |
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| Traditional Credit Assessment Philosophy |
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| Past credit behavior can, at best, only indicate future willingness to pay. A person’s past willingness to pay can be a good indication of his future willingness to pay, but the same cannot be said about the person’s future ability or capacity to pay which primarily depends on future job security and income continuity! |
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| Total Credit Assessment Using Job Score |
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| Since “true credit risk = willingness + capacity” Scorelogix’s Job Security Score is a critical component in understanding a person’s future ‘ability or capacity to pay’. Job security in America is undergoing an unprecedented change and that is why it is so important to understand a person’s income risk in order to get a complete and true picture of his/her credit risk. |
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