4 Best Practices to Follow in Your Credit Risk Management

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Open Lending Gradient Background

Lending comes with risk, but economic and employment uncertainty right now only makes it prudent to review the steps your credit union or bank is taking to mitigate that risk. Credit risk is more than just a credit score. That’s why we started Lenders Protection™! 

The processes before and after each have their own risks that a lender has to be careful to avoid. Here are a few best credit risk management practices for lenders to keep in mind, according to The Risk Management Association:

Know Your Borrowers

Take the time to get to know the borrower and understand their needs, in person if possible and through their digital interactions and data. Pay attention and listen to what they are saying and use those cues to establish what needs they are looking to address through your bank or credit union. Does the data support that?

Lenders also benefit from this exchange of information by building trust to establishing your credibility. A borrower won’t trust you with their finances if they feel their best interests are an afterthought.

Use Lenders Protection™ to gain a comprehensive view of their likeliness to repay!

Price Accordingly

When you have a better handle on a borrowers’ likelihood to repay through advanced data analytics and actionable intelligence, lenders can price their auto loans appropriately. We find quite often with our Lenders Protection™ data that borrowers score better than their traditional credit score would lead you to believe. Engaging Lenders Protection™, banks and credit unions can offer their borrowers a competitive deal and optimize ROI on their auto loans with a low risk of default and insurance coverage to back that up.

Monitor the Relationship

Understanding a borrower’s needs doesn’t stop after the loan is approved and funded. Credit unions and banks would be wise to continue listening to your borrowers as their needs change over time.

Loan payments may come in on time at first, but maybe they become injured in a car accident and can’t work temporarily. Or perhaps they’re moving a town over, and your institution can leverage the relationship you’ve built by anticipating a home equity line of credit for home improvements. To build and maintain that relationship with a borrower, lenders must continuously monitor it and look for any potential risks – or opportunities – that can pop up.

Understand the ‘Local’ Economy

Lenders must consider the economy of the areas they serve, whether local, regional, national or international. Credit unions that serve a certain industry or company should always maintain a strong relationship and knowledge of what’s occurring with employment related to their fields of membership to understand how they could be affected.

No matter the risk, the two big questions to keep in mind are:

  • Will certain factors affect a borrower’s ability to pay back a loan?
  • And if so, what steps can be taken to mitigate that risk?

Open Lending’s Lenders Protection™ is one of those steps for mitigating the risk in your bank or credit union’s auto loan portfolio. 


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