Credit Scoring Methods for Telecom Financiers

Credit Scoring Methods for Telecom FinanciersThe release of the latest iPhone made big news as consumers were lining the streets in anticipation of the latest and supposedly greatest new cell phone. That is of course until next year, when a new, even greater model is revealed. This constant switching and upgrading of cell phones and other mobile devices can make it hard for the telecom companies who provide their services to keep up with these clients and their credit histories.

Most new cell phones will come with a plan for service. Features of that plan and how it is paid for can vary and will have some of the following options:

  • Down Payment – This is for the cost of the phone. Many telecom companies are now offering no or low down payment options as a way to attract new business. This is a big risk venture requiring that a thorough check on the customer’s credit is done. With the wealth of information a telecom company needs to set up the service, they can easily bypass the typical credit reporting agencies and install one of their own.
  • Phone Cost – With no down payment, the telecom company is allowing the cost of the phone to be added to the monthly service bill in installments. The amount and length of time will vary depending on the length of the contract but 2 years is the most common. That is a long amount of time in the small lender world to expect a consumer to continue making payments, again making this a risky venture for the telecom company.
  • Trade Ins – This is the part where the telecom company is at most risk for default. When a new phone comes out next year, those clients will just move on to a new company that offered them no down payment as well. Since this entails signing up for a new service, they are no longer in need of yours. At this point the consumer has no reason to continue paying you for the ones you provided.

With these promotional packages it is easy to understand how the telecom company needs to practice great care when offering credit to these consumers. The phone manufacturers are giving them the incentive year after year to buy something new and leave their old phones, which are not yet paid for, behind.

As the service provider you have access to a wealth of information that other companies providing credit are not privy to. With this you can use your own credit scoring system to ascertain just how credit worthy a client is now, and offer them a package that is based on this score. This is the best tool you have to protect yourself from those consumers departing halfway through the contract, leaving behind a large balance on the mobile device.

Take advantage of your position and install a better system of assessing credit risk. By looking at your clients more recent payment history and in particular contract history with mobile service providers, you will have an understanding of whether or not they will stick out the contract you provide or if they will jump at the next new and improved mobile device that comes along.