Hi,
In the last two blogs I have discussed how many credit departments have adopted a generic approach in how they decide to extend credit. I have also discussed the pressure sales people exert on credit departments to approve their credit requests. Now I want to examine some of the other pitfalls in eliminating the hands-on approach in extending credit:
1) Validating information on a credit application is more accurately done by people than machines.
2) Human involvement can identify when past credit problems should not interfere with current credit decisions. A common example of this situation is when a couple is divorced and the responsibility for financial obligations was put on the back burner during the divorce process, but both people became good credit risks after the divorce.
3) Another common occurrence is that when credit applications are rejected due to erroneous credit information on the individual's credit report. Human reviews can catch and rectify that situation more efficiently than machines.
4) Human involvement allows loan structures to be modified to suit individual credit needs that machines are not programmed to recognize. The best example of this is farming operations and their unusual income streams.
Credit departments have transformed from experienced credit professionals familiar with their particular credit fields, to computerized departments staffed by customer service reps. This change has resulted in an increase in sales and overall profits for companies. But the change also brought an increase in the cost of collections due to inferior credit. This cost has been passed on to the consumer in higher interest rates, finance charges and late fees. Tomorrow I will begin to talk about collection departments, and the people responsible for cleaning up some of the problems created by the generic approach to credit extension.
Until then,
Alan
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