BEACON 09 Auto Industry Option - Equifax

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CONSUMER INFORMATION SOLUTIONS

BEACON 09 Auto Industry Option

Optimizing Risk Management for Auto Finance Lenders

As we all know, consumers place varying priorities on their loan obligations. The BEACON? 09 Auto Industry Option -- developed by FICOTM using a national sample from Equifax's database -- considers this in helping you to gauge risk.

The BEACON 09 Auto Industry Option adjusts the BEACON 09 credit risk assessment score, adding or subtracting points according to predictive information specific to the auto loan industry. What does this mean to you? It means you receive all the proven credit risk assessment benefits of BEACON 09 -- predicting the relative likelihood that credit applicants, prospects and existing customers will satisfactorily repay their credit obligations over the next 24 months -- designed especially for auto finance lending. As a result, you can make credit decisions with confidence, while further limiting risk.

How the Auto Industry Option Was Developed

BEACON 09 was used as the foundation to develop the BEACON 09 Auto Industry Option. Hundreds of credit file characteristics were compared with auto loan performance records to identify the degree of "bad" behavior (90+ days past due on that industry tradeline) over the span of 24 months relative to "good" behavior. Bankruptcy, from any industry, is also classified as "bad."

AUTO INDUSTRY OPTION DEVELOPMENT

Observation Date

24-Month Performance Outcome Period

Performance Date

April 2006

April 2008

Equifax Consumer Credit Database Information + BEACON 09 Score

Performance Information based on worst performance on any auto loan or

bankruptcy on any tradeline

How It Works

The Auto Industry Option combines multiple scorecard technology with the most predictive credit payment characteristics for auto loan performance.

The consumer's credit report is reviewed, and depending upon the contents, is sent to the most appropriate BEACON 09 scorecard. After the BEACON

09 score is calculated, the report is reviewed again to be sent to one of two more auto option scorecards. If there is delinquency or other derogatory

information, it goes to a delinquency scorecard for scoring. If not, it goes to a non-delinquency scorecard.

[ over ]

12 BEACON 09 Scorecards: Eight Non-derog; Four Derog

BEACON 09 Two Industry Overlay Scorecards: One derog; One Non-derog

Industry Adjuster BEACON 09 Score + Industry Adjuster = Industry Option Score

The result . . . precision scoring and a sophisticated yet simple way to achieve even more predictive power for auto loan decisioning.

The Auto Industry Option is aligned to reflect similar odds of "good" to "bad" performance as BEACON 09. This means that the Auto Industry Option provides the same odds of "good" to "bad" auto loan performance at a given score range as a BEACON 09 score range. For example, the same credit report could score 710 using the Auto Industry Option and 680 using BEACON 09. An Auto Industry Option score of 710 would indicate the same degree of risk as a 710 produced from the BEACON 09 score. Scores range from 250 to 900 ? the higher the score, the lower the potential for serious delinquency.

Why It's More Predictive

When you score auto loan performance data as compared to general credit performance data, some unique things happen. At any given percentage of accounts with good performance, the Auto Industry Option identifies a higher percentage of future delinquencies than BEACON 09.

Cumulative % of 90+ Accounts

Better Identify More Likely Defaults All Existing Auto Loan Accounts

100 90 80 70 60 50 40 30 20 10 0 0

BEACON 09 Auto Finance vs. BEACON 5.0 Auto Finance

4% improvement

BBEEAACCOONN 0099 AAuuto FFinnaannccee BBEEAACCOONN 55..00 AAuuto FFinnaannccee BBEEAACCOONN 0099

10

20

30

40

50

60

Cumulative % of Total Accounts

Optimizing Risk Protection for Auto Loans Based on a national sample of consumers with auto loans, the Auto Industry Option identified 56% of all 90+ delinquencies within the lowest-scoring 10% of scored files with good performance, compared to 54% with BEACON 09.

There also is an upward shift in higher scores and a downward score shift of the "bads" population, further segmenting credit risk.

Percent

Broadens Distribution to Identify Best Customers All Existing Auto Loan Accounts

BEACON 09 Auto Finance vs. BEACON 5.0 Auto Finance

18

16

14

12

10

8

6

4

2

0 < 500 500- 520- 540- 560- 580- 600- 620- 640- 660 - 680- 700- 720- 740- 760- 780- 800- 820- 840+ 519 539 559 579 599 619 639 659 679 699 719 739 759 779 799 819 839

Score

BEACON 09 - Auto

BEACON 5.0 - Auto

BEACON 09

Fine-tuning Interval Score Distributions The Auto Industry Option broadens the distribution outward to both higher and lower score ranges, providing opportunities to identify the best customers.

You will need to evaluate the Auto Industry Option's performance on your own portfolio before deciding where to make necessary score strategy changes to minimize losses.

How You Can Use It

The Auto Industry Option gives you the heightened ability to separate future paid-as-agreed loans from potential delinquencies, repossessions and/or bankruptcies. This increased precision helps you: ? Decline more potential high-risk applicants at the same approval rate while reducing your future loss rate. ? Approve more low-risk applicants while maintaining the same loss rate. ? Segment accounts for more effective risk-based pricing. Also, the option works equally well for prescreening, new account approvals and account

management.

Easy to Implement

It's easy to incorporate the Auto Industry Option into your current operating environment. ? If you are only converting from the BEACON 5.0 Auto Industry Option to the BEACON 09 Auto Industry Option, no additional programming is required. ? If you are converting to the BEACON 09 Auto Industry Option from any other versions of BEACON, then System-to-System and PC users need to

program a few additional reason codes so their systems can return these explanations for adverse action notification procedures.

Get the Strongest Risk Mitigation for Auto Lending

Isn't it time to elevate your risk assessment capabilities? Get the increased predictive power of the BEACON 09 Auto Industry Option -- optimized risk assessment designed specifically for auto lending. For more information, call your Equifax representative, or 1-800-879-1025, or visit us online at today.

Equifax and BEACON are registered trademarks of Equifax Inc. Inform, Enrich, Empower is a trademark of Equifax Inc. FICO is a trademark of Fair Isaac Corporation. Copyright ? 2009, Equifax Inc., Atlanta, Georgia. All rights reserved.

EFS-913-ADV--5/09

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