Decisioning is the process of coming to a judgement on a matter under review. In terms of finance and credit applications, it is the decision to approve, deny or condition an application.
Automated Decisioning is used when a full credit report review is not necessary. For example, if a consumer applies for a bank account with $500 overdraft, the data system will automatically dial up the credit reporting agency, seeking specific criteria, such as minimum credit score and no late payments for a set number of months. This type of automated system is quite common in large retail outlets offering merchant credit cards, who promote credit products by offering discounts on purchases, and require quick credit decisions be made. The upside to automated decisioning is immediate activation and use of the credit product. The downside is the consumer is not given a grace or flexibility with the application standard. For example, if the automated system requires a minimum credit score of 620, an applicant with a score of 618 will not be approved.
Manual Decisioning is used to interpret a consumer credit history, and allows flexibility in the credit granting process. This is often used by creditors at financial institutions to override automated decisions. For example, an automated system may respond to a loan application as a denial, or refer if joint, based on the individual’s debt service ratio. This would indicate the client does not have sufficient income to service the loan. However, a manual review of the credit history may show an existing instalment debt has only one payment remaining. Removal of the payment from the debt service ratios will show a truer picture of the client’s ability to repay the debt, and the creditor may now override the automated decision.
Automated responses: While it varies depending on the consumer credit reporting agency and the software used by the credit grantor, most automated decisions are versions of the following responses.
- Approved $xxx – indicates the maximum amount approved for, which may be lower or higher than the amount the consumer requested.
- Approved, offer xyz account – original application is approved, and consumer qualifies for additional products or promotions.
- No Credit – a hard denial that usually indicates payment or credit problems or no credit history.
- No Credit, refer if joint – a conditional decision, this indicates an applicant needs a co-signer to strengthen the application. Assuming the co-signer qualifies, the application will be approved, however, a co-signer with poor credit history, low income, or overextension of debt will not strengthen the credit application.
- Confirm telephone/address/dob/ssn – if the application information differs from that on a credit report, the information needs to be checked for accuracy, and the application corrected and resubmitted.
- Refer (code) – many codes are used for a referral, due to security issues on a consumer credit report, which means the credit grantor must take extra measures before granting the application. Often known as “flags”, these referral codes often appear if a consumer has been a victim of identity theft, had a wallet stolen, or reported a lost or stolen social security number. There are many other reasons for a referral code, such as court judgements, collections, debt service ratios too high, lack of credit history and so on, but these codes or flags are usually accompanied by a denial of credit. The code simply allows the creditor to advise the consumer why the application was denied.