For the first time in Denmark, credit card companies and other financial services companies can now electronically verify whether a customer has debt with other lenders before entering into a credit agreement. EnterCard is one of the members of KreditStatus, a new data sharing system that draws upon daily updated information about the customer’s debt to other member companies. The system is developed by Finance and Leasing and Experian.
Up until now, it has only been possible to verify electronically if a customer appears in RKI, a nationwide register of bad debtors. Therefore, credit risk assessment has primarily been based on information provided by the customer, e.g. the annual tax statement.
“The philosophy behind KreditStatus is to not only use the so-called negative credit information systems, but rather examine in advance what loans or credits the customer has elsewhere,” says Christian Brandt, Director of Finance and Leasing.
The disadvantage of using tax data as a means to assess creditworthiness is that it is only updated once a year. KreditStatus, on the other hand, allows the companies to share updated information about a customer’s existing credit commitments on a day-to-day basis. This allows for much more reliable credit assessment.
EnterCard contribute information about our customers’ existing debt with us and can obtain daily updated information about the individual customer’s debt with other KreditStatus members. The concept is well-known in other markets but hasn’t existed in Denmark before now.
The data is generated specifically for each application – provided the customer’s prior approval. It can only be used for the credit assessment in question, and treatment of data and personal information is subject to strict requirements. KreditStatus was developed in response to a European Consumer Credit Directive on responsible lending and has been approved by both the Danish Data Protection Agency and the Danish FSA.
“The benefit for us as a credit company is twofold,” says Andrew Karmy, EnterCard’s Credit Risk Director. “We can offer customers with a good credit rating better products and lower interest rates and give well-founded answers to those who have been declined credit.”
As some of the traditional lending institutions have not yet joined KreditStatus, tax information still constitutes an important part of credit assessment. Digital access to this data has also been improved, as the customer can now grant the lender permission to retrieve all relevant tax information electronically through the Danish tax authority’s self-service facility, HentSelv.
“KreditStatus gives us a snapshot of what debt and obligations an applicant has already, while HentSelv provides us with information about the applicant’s net income – and thus their ability to maintain the credit,” says Karmy.
“Together, the two systems simplify the application process and allow for more automated credit scoring and better credit risk decisions,” Karmy explains. “The better credit risk decisions we’re able to make, the fewer times we’ll grant credit to somebody who cannot afford it and the fewer times we’ll decline credit that a customer can afford and has use for.”