The third week of January is well known as the bluest week of the year. Christmas is over, the bills come in and consumers realize they’ve overspent – again! Credit risk management is even more relevant in January and February.

We’re not sure there’s actual science behind “Blue Monday” or that it’s the most depressing week of the year. We do know, however, that this is the week many consumers get their credit card bills and often the picture’s not pretty. For lenders, this means there’s an increased need for credit risk management.

A report by Mastercard SpendingPulse™ reveals that 2019 holiday retail sales increased 3.4 percent compared to 2018. Of that total, online sales were up 18.8 percent. (Mastercard SpendingPulse™ provides insights into overall retail spending trends across all payment types, including cash and check.)

Rising risk of credit delinquency

Based on our own research, the addition of holiday debt puts consumers at high risk of credit delinquency. Our own research reveals that U.S. consumer debt is now just shy of $14 trillion. Broken down, this includes:

  • $1.0 trillion in credit card debt (Federal Reserve, January 2020)
  • $1.56 trillion in student loans (Federal Reserve, November 2019)
  • $1.5 trillion auto debt (NY Federal Reserve, January 2020)
  • $9.44 trillion mortgage debt (NY Federal Reserve, November 2019)

The NY Federal Reserve revealed disturbing news this week. Over 7 million Americans are behind 90 days on their car loan payments, many owing more than the vehicle is actually worth. This dramatically raises car loan delinquency to five percent; it was 2.34 percent in the third quarter of 2019 (NY Federal Reserve).

Proactive credit risk management brings success

With such high debt hanging over their heads, consumers appear to be committed beyond their means. But lenders can manage credit risk proactively with the right tools. Artificial intelligence and machine learning are able to monitor accounts and predict potential delinquency. Your monitoring solution should flag high-debt customers seeking more credit, those making minimum payments, or those paying at the last minute. Real-time alerts and reporting are also important tools for proactive credit risk management.

Does it work? Yes, in fact it does. One major bank Brighterion works with has been able to reduce its default-related losses by 76%.

Know the warning signs

We’ve created a resource package with current numbers about U.S. consumer debt (including a breakdown and analysis), credit risk management and preventing delinquency with AI.

The resource package includes:

  • An Ebook that outlines the current credit risk environment and ways to prepare for potential delinquencies
  • The exclusive PYMNTS interview on using AI to predict and prevent delinquencies with Amyn Dhala, Vice President, Global Product Management, AI Express, Mastercard
  • An infographic with some of the top indicators
  • Brighterion credit risk datasheet that discusses our AI solution that monitors and assesses credit risk transaction by transaction in real time

We will continue to post updates in the coming weeks and months.