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Five Questions with Peter Carroll

Peter Carroll is a partner at Oliver Wyman, a global management consulting company. Carroll founded the firm’s Retail Financial Services“Feb2018” practice. For more than 30 years, he has led the development and execution of innovative strategies for financial firms in North America and Europe, primarily focusing on consumer and small business financial services companies.

His robust experience includes implementing information-based strategies in the credit card business, developing state-of-the-art techniques for credit scoring, price optimization and other targeting/decision actions in both lending and deposit-gathering businesses and leading extensive work for US, non-US credit bureaus and other critical data aggregators to identify opportunities for data and analytics application areas. 

He leads extensive work for U.S., non-U.S. credit bureaus and other critical data aggregators to identify opportunities for data and analytics application areas. His expertise also covers branch location strategy, branch network operations and service delivery, mortgage banking, private banking, credit cards and investment products.

Mr. Carroll holds degrees in Engineering and Economics from Cambridge University and the London Business School.

1. There’s been some debate over the years about whether there is “one score” that lenders use for underwriting. Based on your research, what are your thoughts on that narrative?

It is a popular and widespread misconception that lenders rely on a single score to underwrite loan applications. Only two or three scores have achieved a degree of name recognition with consumers, and these are known as “generic” scores. But behind the scenes, there are literally dozens of different credit scores in use — actually, hundreds. Most of these are “proprietary scores” built by (or for) specific lenders to underwrite specific products.

2. Are some lenders actually using multiple scores?

Yes. The larger lenders all use proprietary scores that they built internally, or in some cases, that were developed for them by third parties. These scores are specific to them, as entities as well as to separate products, like credit cards or auto loans. So, these lenders certainly use multiple scores. Even when they are using these proprietary scores they sometimes also check one or another industry generic score as part of the process. Underwriting is much more complicated than just looking up one credit score for an applicant.

3. What are the various roles that credit scores play in a typical credit card issuer’s business?

Broadly, card issuers access to credit bureau files and associated scores for three purposes: targeting potential new customers, underwriting applicants, and monitoring the credit status of existing customers in the portfolio. They also use scores in the collections process for delinquent accounts.

4. What should consumers take away from your research?

Consumers today are much more aware of what happens in the credit process than they used to be; at a high level, they know what “credit scores” are and how their own behavior can influence their score, whether up or down. I think our research suggests that the consumer should not fixate on advice associated with any one score and how to influence it. Certain behaviors — relatively obvious ones — can improve a consumer’s creditworthiness across all credit scores!

5. What are other lending trends are you closely monitoring?

One of the most interesting things happening in the world of credit assessment and credit scores is the gradual integration of “alternative data” — like rental payments, or even checking account information. In some cases this is happening by incorporating the additional data directly into new scores; in other cases, risk assessment relies on existing scores but is supplemented by the additional data. Either way, this has real potential to make access to credit broader and more democratic and to improve the accuracy of risk assessment.

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