It is prudent, therefore, to understand why people (individuals) default on payments before making rash judgements regarding how they should be treated. There are many, many reasons and all are understandable given the facts.
For example, the simple task of paying bills turns out for some people to be a complex issue, often subject to arbitrary and elusive rules. We should consider the following:
Only a small percentage of credit risk can be predicted using current static systems.
Today, credit risk assessment is largely the prerogative of specialised credit agencies that provide companies with either fixed algorithms for filtering customers requiring credit at the point of contact, or provide fixed scores computed over minimal attributes for the same purpose.
Thus, if I elect to purchase a product without using cash, the agent I deal with might already have a credit score of mine supplied by an outside agency (either on-line or dial-up) or may put me through some mini interrogation previously defined to gain answers to key credit worthiness questions – the result is the same, I either pass or fail and the goods are mine or otherwise.
Such systems cannot be considered ‘state of the art’ for many simple reasons:
- Ø In reality, credit authorisation is a time-consuming, expensive and irritating feature of modern life.
- Ø Web shopping will make traditional credit authorisation prohibitively cumbersome.
- Ø Credit agencies do not have much of the data pertinent to credit authorisation, much of what they do have is out of date
- Ø Critical data, although often available, is not used by third-party credit companies.
- Ø All credit models are fundamentally the same – very little differentiation is possible even though many competing companies have their own unique customer profiles.