Article Abstract:
Creditors need to adopt new collection strategies that reflect the significant shifts in consumer behavior. Today's consumers have greater access to credit than ever before, more freedom to choose credit providers and switch to firms offering the best deal, and better understanding of credit bureau policies. In addition, they have become less concerned about the stigma associated with going into debt and more adept at avoiding collectors. In this environment, it is no longer appropriate to employ the traditional 'bucket' collection approach, which involves classifying accounts based on how late they are. Many creditors are turning to behavioral scientists, sociologists and anthropologists to help them gain a better understanding of behavioral changes among consumers and develop appropriate recovery techniques. Several behavioral approaches to collection are discussed.
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Article Abstract:
The credit industry subdivides potential borrowers into 'prime' and 'sub-prime' credit risks. Using the industry-standard credit scoring model, prime credit risks are those who score above 670 while sub-prime borrowers are those who score 670 or below, and therefore considered to have a greater probability of becoming delinquent payers. Because of this, credit companies flock around potential borrowers with prime credit ratings to offer them pre-approved cards. Consumers with sub-prime ratings, on the other hand, tend to be offered only secured cards backed by personal savings accounts. Many financial institutions have proven the sub-prime market can be very lucrative, particularly when special oversight and collection mechanisms are in place. Models for assessing sub-prime credit risks are discussed.
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Article Abstract:
The credit and collection industry is in a state of flux. A paradigm shift is evident in such areas as borrowing, consumer spending, collecting, credit quality. Borrowers tend to have less household earnings and to seek credit to finance daily living expenses, while consumer spending has grown dramatically such that Americans now have accumulated the largest amount of personal debt in US history. The collection environment has also changed drastically, with many consumers no longer hesitating to declare personal bankruptcies to preserve their assets from creditors. As for credit standards, an increasing number of companies are beginning to accept installment paper with a credit quality rating of less than A. Tips for succeeding in an evolving marketplace are suggested.
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