Behind The Apply Button Episode 9 – “The Next 90 Days: The Most Important Thing You Can Do Right Now”

Back to Blog


by Alchemy

What I found was that across every credit band (20 point bands), default rate raised sharply from 5-7x at the bottom of the credit spectrum to 2-3x at the top.

We survived another day of this most unprecedented black swan event for the past 100 years.

The Spanish flu of 1918 infected about 30% of the world population (500 million). Between 17 to 100 million people died. Making it the deadliest epidemic of human history.

The reality is that over the past 100 years, we learned how to fly and landed the moon, stamp out a myriad of fatal diseases, invented electricity and gave birth to the information age just to name a few of our human inventions.

We will overcome this pandemic and it’s not the time to feel helpless, hopeless and worse fatalistic. We will prevail and become stronger to tackle another 100 years of challenges and innovation.

This week

I took a ton of calls this week from colleges, friends in the industry, clients, and partners. Most of them have questions (how long, how bad, when and why?) that simply don’t have answers to. But they are determined, level headed and are all looking beyond the pandemic and planning ahead.

Hats off to those that are looking after their employees, their investors, their customers, and their portfolios. Speaking of portfolios, here’s the most important thing you can do right now.

The most important thing you can do right now

Portfolio performance will suffer, there’s no doubt that default rates will rise. Those that scored 580 will behave like 520 and your charge off rate will rise.

A decade ago, when FinTech was just beginning to flourish and the US economy was on the verge of making a come back, I had the privilege to study credit default rates over time from the late 1990s to 2010. My tasks were to backtest personal loan portfolios and asset-backed portfolios performances against a few downturns we’ve experienced in the past, especially the 2008’s “great recession”.

What I found was that across every credit band (20 point bands), default rate raised sharply from 5-7x at the bottom of the credit spectrum to 2-3x at the top. That is to say that if your current portfolio charge off rate is 3% and your average FICO score is about 660, be prepared to see a 9 to 12% charge off rate during a recession such as the one we experienced in 2008.

The most important thing you can do right now is to take a pulse of your portfolio with a credit pull on a monthly basis. Better yet, design triggers that will prompt you for immediate actions.


Each credit bureau in the United States has an account review or portfolio review tool which you can use to append full credit reports to each one of your contracts. This will give you visibility in terms of higher than usual credit inquries (your current customer is looking for additional credit), higher than usual utilization rate (your current customer is maxing our their credit card), taking on additional debt (your current customer is hurting their abilities to pay) or worse bankruptcy filings.

All of these indicators or “triggers” are signs of impending problems that your customers may not have the ability to service their debt.

Too little too late?

Some might argue that by the time you find out about these issues, it might be too little too late. But on the contrary, the earlier you find out about these issues, the better is it for you to get on the phone as one of the first creditors to offer a work-out or medication program to ease your customer’s financial hardship.

Even in a bankruptcy situation, there is a waterfall payout when the customer emerges from bankruptcy.

The obvious benefit is that you could use this information to predict the likelihood of “like” customers going into default and get ahead of those situations even earlier using predictive modeling techniques.

The next 90 days

When I published my last episode, I urged my Fintech friends to reach out to their customers, their clients, and their partners to help. It’s time we demonstrate our solidarity with our experience, technology, analytical know-how to not repeat what happened n 2008. Together we can #RebuildTheWorld