CU Mag: How do you accommodate members whose credit scores have fallen?
Vann: We’ve widened our buckets. We have five credit buckets: A+, A, B,C, and D. I established an A+ bucket and widened our A and B buckets so they recognize more people who are good risks but whose credit scores may have fallen—not necessarily because of anything they did.
We don’t have high average credit scores to begin with. My A+ bucket starts at 700, where at most institutions it starts at 740 or above. We don’t have many people with 740 Beacon scores around here. We know our audience.
That’s the other side. Most people in this business really don’t know their audience. And if you don’t know your audience, how will you price and lend to it? If you think everyone across the U.S. fits these buckets, then you really don’t know your audience.
When you have someone at the branch making loan decisions, you build real relationships with members. When you have someone making centralized decisions, they’re just repeating what’s on the screen in front of them. There’s no sincerity.
All they’re doing is selling someone else’s decision that they may or may not agree with. They’re just a puppet repeating what someone else is telling them to say. That doesn’t work for me.
CU Mag: Sounds like traditional underwriting
Vann: Yes. We have members who’ve been with us for 25 to 30 years. Their lives change. But as long as their relationship with you hasn’t changed—they’ve treated you well and always met their obligations—why should you treat them differently?
Relationship, stability, and ability are the three primary factors we look at. Then we throw credit on top of those. But we already know that credit will be a challenge here.
We use credit score to show us the current trend and to price the loan. We throw members in a rate bucket and give them discounts for their relationship with us. We reward behavior that we want and upcharge behavior we don’t like.
Navy Army Credit Union obtained a community charter in January 2003 and has since quadrupled in size—without accompanying delinquency issues. Vann expects the credit union’s assets to exceed $1 billion by the third quarter.
Check back to see how Navy Army Credit Union made the transition to a community charter.