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MEMO - Assignment Example

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FICO Scores in Awarding Loans to Customers Internal Memo To: The New Banking Interns, Fidelity Trust Bank From: Loan Officer, Fidelity Trust Bank RE: Updates on using FICO scores to determine the customers to e granted loans Date: Oct 21, 2013. I am writing to give you updates on the role of FICO scores in determining whether the customers you serve at the bank can be granted loans…
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MEMO

Download file to see previous pages... FICO scores are reviewed by almost all lender agencies in America, before they arrive at credit decisions to offer their customers credit. For that reason, through the proper usage and incorporation of the scores, as a banker, you will be able to avoid customers with poor credit history, which will improve the financial performance of Fidelity bank. Overview of the main Fico Scores The FICO scores of customers will take into account, five main information categories that relate to the customer’s credit profile. When using FICO scores to determine the customers that can be offered loans, the chart given below displays the comparative weight offered to the different score areas. The 5 main areas featured in FICO scoring and their relative weight The review of the different ingredients of the FICO scores 1. Payment history The payment history of the customer contributes about 35 percent of their FICO score. The information reflects their information on different financial accounts and areas. The different accounts reflected through the information include Credit card worth and standing, for cards like MasterCard, Visa, Discover and American Express. The second accounts featured are retail accounts, where the customer’s financial operations reflect the credit collected from outlets where they do business – showing the credit cards used at departmental stores, and the credit history maintained. The third account reflected is installment loans, where regular reimbursements for loans like mortgages or car loans are reflected. The fourth account reflected through the payment history is finance company records. Additionally, collection items and public records are reflected, giving information on events like foreclosures, bankruptcies, wage attachments, lawsuits, judgment and liens. Lastly, this score area gives information on the accounts that don’t show late payments, and whose financial obligations are met as agreed upon. From the information captured about the different accounts and fields named before, you will use your judgment to verify whether the given customer has shown a history of repaying loans and whether their financial standing warrants the loan they are asking for. Therefore; based on the information captured, you will only offer credit to a customer with a favorable credit history and avoid those with poor payment history, because a poor history shows that they are more likely to give problems when repaying the credit. 2. The second area where you need to pay much attention is the field of the amounts owed. This information reflects about 30 percent of a customer’s FICO scores, which indicates their level of indebtedness. The areas reflected by this variable include the amounts owed for the different accounts held by the customer, the amounts apportioned to different account types, the balances from different account types, the proportion of the credit consumed through credit cards among other credit accounts and how much the customer is yet to pay, on different loan amounts. Through the review of this score area, as bankers you will determine the level of debt that the customer has collected, which can influence their ability and their pattern of loan repayment. For example, from the case of a customer who has used larger proportions of their ...Download file to see next pagesRead More
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