Lookahead scorecards for new fixed term credit products

Lookahead scorecards for new fixed term credit products

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Article ID: iaor20021252
Country: United Kingdom
Volume: 52
Issue: 9
Start Page Number: 989
End Page Number: 996
Publication Date: Sep 2001
Journal: Journal of the Operational Research Society
Authors: ,
Keywords: credit scoring
Abstract:

Standard approaches to scorecard construction require that a body of data has already been collected for which the customers have known good/bad outcomes, so that scorecards can be built using this information. This requirement is not satisfied by new financial products. To overcome this lack, we describe a class of models based on using information about the length of time customers have been using the product, as well as any available information which does exist about true good/bad outcome classes. These models not only predict the probability that a new customer will go bad at some time during the product's term, but also evolve as new information becomes available. Particular choices of functional form in such models can lead to scorecards with very simple structures. The models are illustrated on a data set relating to loans.

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