The fundamental challenge when populating the CreditForecast 4.0 database is to correlate the attributes of a consumer (credit score, etc.) with the attributes of a credit account (payment history, etc.). But if a single credit account has multiple users, which person gets picked? This article describes the pre-processing performed by Equifax before delivering the data to Moody's Analytics.
Consumer credit accounts can have four types of responsible users. Account structures vary by product type (bankcard, mortgage, student loan, etc.) but the dynamics of responsible users are universal. A credit account can be easily matched to a person for three user-types:
- To its primary user when s/he is the only user.
- To its primary user if it has authorized users.
- To its guarantor when it has other user(s).
For the fourth user-type, co-applicants, picking a match is more complicated.
Primary Users: The most basic and traditional arrangement between a person and a credit account. When an individual is extended a loan, s/he becomes fully responsible for managing its use and is obligated to stay current. If the individual avoids sharing privileges and responsibility (as with the user-types below), the loan is easily and uniquely matched to his/her personal credit file.
No adjustment by Equifax is necessary.
Authorized Users: Have the right to use the account, but are not obligated to pay on it. Are typically family members within the household of the primary user of a bankcard account.
Equifax drops authorized users from the dataset, since the credit account can be matched to the primary user.
Guarantors: Usually lack charging privileges on the account, but are responsible for its balance. This arrangement is typically used by parents or guardians looking to build the credit profile of their young dependents.
Equifax relates the credit account to the borrower's consumer profile. The guarantor is typically included when the borrower is not able to secure a sufficient line of credit for their intended use given their existing credit profile.
Co-applicants: Two co-signing individuals who are equally and fully responsible for the account. In the event of default, the lender has the right to go after both for the full amount owed. The arrangement is common among spouses, who by combining their credit profiles and incomes can secure a larger loan or credit line than either could separately.
Equifax picks one of the co-applicants at random ("Person A"), and that person's credit file is affixed to the shared account ("trade"), until and unless later life events change ("flip") the assignment.
Priority is given to living persons. If Person A dies, the loan flips to Person B, still living.
In cases of divorce, a joint account is often converted to a single-user account. If it goes to Person A, there's no change, but if it's Person B, the trade flips.
One way CreditForecast 4.0 divides data is by origination score band, which is an attribute of the consumer. If a joint trade is initially assigned by Equifax to a co-applicant in one band, and is later flipped to the other co-applicant who resides in a different band, then the performance characteristics will be extended to the individual assuming the account. The origination characteristics remain affixed to the previous borrower to remain consistent.