Replies to This Discussion

Permalink Reply by pradike on November 23, 2010 at 12:34pm

A number of lenders with whom I have spoken have lost a great deal of confidence in scoring in general.

These same credit grantors have almost unanimously indicated that as long as scoring data reflects payment habits over the past 2 years (or more), they will have very limited value in the next few years to predict risk (as the economy starts any firm improvement).

Overall, the consensus of those sharing their views has been that last week's 700, last month's 700, or last year's 700 means little today or in the near future to predict repayment habits/risk.

Permalink Reply by pradike on November 23, 2010 at 12:48pm

The lenders I spoke with would disagree. Specifically, they cited that the statistics used to build a score are only as predictive as historical data and corresponding results. In the past 2 years, almost every historical attribute pattern has changed immensely, and it still has not recovered. Both generic and empircal data are impacted the same way in this regard, leading to the reduced confidence levels.

Even FICO themselves has acknowledged in webinars that new scoring algorythms will be required to render sound predictive attribute rankings.

Permalink Reply by Paul Mitchell on December 14, 2010 at 1:54pm

We at Clarity Services believe that lenders may want to explore additional information sources to augment their current scorecards.  I would agree with Dan Parry that traditional scorecards that incorporate a FICO or Vantage score, continue to do a pretty good job of ranking or sorting good to bad.  What you may want to explore is the inclusion of information from one of the bureaus like Clarity, that specialize in Consumer Credit information for the Thin-File, Un-banked or Under-banked customer.  While the roots of companies like ours are in Payday Lending, Short-term Installment Loans, Lines of Credit, Title Loans, etc... we think that doing some analysis on how lenders in these businesses make their underwriting decisions may be useful in adding some new elements to your scorecard development process.

Permalink Reply by ANDRES HUERTAS on December 16, 2010 at 12:49pm

Marcie,

Scores are a good partial indication of the payment ability of an individual but are not the sole indicator of risk; an error of the past was to use the score as the SOLE INDICATOR of the approval of the loan when in reality you have to look at the score (see the past credit behavior) and complement the credit decision with other information such as income, expenses,  and affordability tests to see what is the real risk of the loan and see if the customer can afford to pay back or not.

In a sense I agree with you, it will take some time before we see again a score of 700 as a score of 700.