vision 2014: improving your approval and account management strategies using trended risk stability...

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Improving your approval and account management strategies using trended risk stability data

Lori Dietrich Experian

Kelley Motley Experian

#vision2014

2 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.

How do I expand my marketable universe?

How can I differentiate risk at the margins?

Who do I want to retain?

Are there leading indicators for risk?

Does past score performance predict future score behavior?


Tracking score changes over time

800

700

600

500 Jan Feb Mar Apr Dec May Jun Jul Aug Sep Oct Nov

Mary Stable

Bob Possible stress

Sue Improving

Three people. One score. Three different ways they got there.


Do past credit-scores or changes in credit score influence the current risk?

We have seen some evidence that changes in score can differentiate credit-risk

Historical credit-risk scores Relationship between score change and bad rate

VantageScore®

band Overall Bad Rate

Stable –

bad rate Score increase –

bad rate Score decrease-

bad rate

<500 55.89% 43.48% 35.42% 62.03%

500-600 22.93% 17.67% 16.22% 29.18%

601-660 6.44% 5.42% 5.83% 8.38%

661-780 1.20% 1.05% 1.08% 1.65%

>=781 0.16% 0.16% 0.16% 0.18%





VantageScore®


Stable –



bad rate

<500 55.89% 43.48% 35.42% 62.03%

500-600 22.93% 17.67% 16.22% 29.18%

601-660 6.44% 5.42% 5.83% 8.38%

661-780 1.20% 1.05% 1.08% 1.65%

>=781 0.16% 0.16% 0.16% 0.18%


Why can’t historical scores / attributes be used in FCRA products?

Disputes

► Information used for decisioning must be displayable and disputable on a current credit report

► When a consumer successfully disputes their credit score, Experian makes the correction in File OneSM and all future scores will be corrected

Time limitations

► Historical scores may include data outside the seven-year window

● Example: A score computed three years ago may take into account a bankruptcy that happened nine or ten years ago

Historical credit-risk scores Historical scores and the FCRA

8

However, we do have a source of historical,

FCRA compliant credit information: trended data


Historical scores calculated using trade line trended data

Definitions:

► Bads: 90 DPD+ on random trade within 12 months

► Goods: 0 or 30 DPD on random trade within 12 months

Output

► Four Indices – Stability over time

► Optional – 18 monthly historical scores

● Historical risk score is scaled 300-850

Risk Stability IndexSM

KS

VantageScore® 68.49

Historical Score 61.90

Using trended data that is displayable on a current consumer credit report, Experian has created a Risk Stability IndexSM

0

0.05

0.1

0.15

0.2

0.25

0.3

300 400 500 600 700 800 900 1000

Vantage Historical Score


Index 1 – 18 month difference

a. Large negative change (>= 60 points)

b. Moderate negative change (20-59 points)

c. Stable (+/- 19 points)

d. Moderate positive change (20-59 points)

e. Large positive change (>= 60 points)

Index 2 – 12 month difference (same as above)

Index 3 – 6 month difference (same as above)

Risk Stability IndexSM output options


Risk Stability IndexSM output options

Index 4 – Average change in score for 18 months

a. Very stable – 0 to 10 points

b. Stable – 11 to 20 points

c. Moderately unstable –

21 to 30 points

d. Unstable – 31 to 40 points

e. Severely unstable – 41 or

more points

Optional, 18 monthly historical scores


Lenders can factor in historical score changes to their segmentation where consumers have similar scores

Identify less risky consumers to target or retain based on stability of risk score over time

Suppress more risky consumers for marketing or upsell offers

Risk Stability IndexSM How lenders can use


Trended risk stability

case studies

Kelley Motley


Objective:

What does trended (historical) score data provide that my current score isn’t capturing?

How does Risk Stability IndexSM compliment a risk score for acquisition and portfolio management?

Overview:

Two populations matched to Experian’s credit archive in order to append and evaluate Experian’s Risk Stability IndexSM

► Retail – portfolio management

► Bankcard – new account acquisition

Analysis objective and overview


Performance window and definitions Retail portfolio management

Starting population (4M records)

December 2013 December 2012 December 2011

12 -month performance window 12 -month risk stability index

Observation point

Performance definitions:

Bad 90+ days past due

Good No worse than 30 days past due

Indeterminate 31-89 days past due


The risk score provides good separation and ranking of bad accounts

Baseline model performance Retail portfolio management

VantageScore®

Range

Total number of

consumers Total bad consumers Bad rate

820-839 429,744 365 0.08%

809-819 372,718 350 0.09%

792-808 410,676 663 0.16%

767-791 392,742 1,109 0.28%

739-766 400,426 1,900 0.47%

710-738 401,885 3,614 0.90%

676-709 407,650 7,042 1.73%

644-675 399,549 13,653 3.42%

600-643 396,948 28,195 7.10%

300-599 395,507 95,616 24.18%


Risk stability in addition to risk score adds value

Risk Stability IndexSM overlay to risk score Retail portfolio management

VantageScore®

Range

Total number of


644-675 399,549 13,653 3.42%

Overlay risk stability

Large

negative

change

36,056

Bad rate 5.61%

Moderate

negative

change

67,494

Bad rate 3.45%

Stable

179,536

Bad rate

3.01%

Risk Stability IndexSM provides bad rate separation of 3.0% -5.61%

Moderate

positive

change

75,848

Bad rate 3.17%

Large

positive

change

40,615

Bad rate 3.70%


Evaluating risk stability in addition to risk score


VantageScore® 12-Month Risk Index Overlay

Number of Consumers

Score

Range

Number of

Consumers

Large neg.

Change

Moderate

neg. Change Stable

Moderate pos.

Change

Large positive

change

820-839 429,744 9,492 40,541 329,035 41,879 8,797

809-819 372,718 9,881 37,803 263,727 48,973 12,334

792-808 410,676 13,229 45,878 264,592 66,591 20,386

767-791 392,742 16,685 50,472 225,405 71,547 28,633

739-766 400,426 22,247 57,392 198,796 82,381 39,610

710-738 401,885 28,550 65,162 182,333 83,980 41,860

676-709 407,650 32,630 67,942 182,373 82,643 42,062

644-675 399,549 36,056 67,494 179,536 75,848 40,615

600-643 396,948 52,871 70,647 169,536 64,386 39,508

300-599 395,507 132,268 75,651 110,380 46,909 30,299





Bad Rate

Score

Range

Bad

Rate

Large neg.

Change

Moderate

neg. Change Stable

Moderate pos.

Change

Large positive

change

820-839 0.08% 0.07% 0.09% 0.08% 0.10% 0.13%

809-819 0.09% 0.08% 0.10% 0.10% 0.06% 0.11%

792-808 0.16% 0.23% 0.13% 0.16% 0.14% 0.22%

767-791 0.28% 0.49% 0.26% 0.27% 0.27% 0.35%

739-766 0.47% 0.77% 0.46% 0.45% 0.42% 0.56%

710-738 0.90% 1.63% 0.84% 0.86% 0.80% 0.88%

676-709 1.73% 3.10% 1.64% 1.60% 1.48% 1.85%

644-675 3.42% 5.61% 3.45% 3.01% 3.17% 3.70%

600-643 7.10% 11.43% 7.66% 5.86% 6.41% 6.77%

300-599 24.18% 36.05% 23.23% 17.00% 15.98% 13.52%




VantageScore® 12 Month Risk Index Overlay

Bad Rate

Score

Range

Bad

Rate

Large neg.

Change

Moderate

neg. Change Stable

Moderate pos.

Change

Large positive

change

820-839 0.08% 0.07% 0.09% 0.08% 0.10% 0.13%

809-819 0.09% 0.08% 0.10% 0.10% 0.06% 0.11%

792-808 0.16% 0.23% 0.13% 0.16% 0.14% 0.22%

767-791 0.28% 0.49% 0.26% 0.27% 0.27% 0.35%

739-766 0.47% 0.77% 0.46% 0.45% 0.42% 0.56%

710-738 0.90% 1.63% 0.84% 0.86% 0.80% 0.88%

676-709 1.73% 3.10% 1.64% 1.60% 1.48% 1.85%

644-675 3.42% 5.61% 3.45% 3.01% 3.17% 3.70%

600-643 7.10% 11.43% 7.66% 5.86% 6.41% 6.77%

300-599 24.18% 36.05% 23.23% 17.00% 15.98% 13.52%




Bad Rate

Score

Range

Bad

Rate

Large neg.

Change

Moderate

neg. Change Stable

Moderate pos.

Change

Large positive

change

820-839 0.08% 0.07% 0.09% 0.08% 0.10% 0.13%

809-819 0.09% 0.08% 0.10% 0.10% 0.06% 0.11%

792-808 0.16% 0.23% 0.13% 0.16% 0.14% 0.22%

767-791 0.28% 0.49% 0.26% 0.27% 0.27% 0.35%

739-766 0.47% 0.77% 0.46% 0.45% 0.42% 0.56%

710-738 0.90% 1.63% 0.84% 0.86% 0.80% 0.88%

676-709 1.73% 3.10% 1.64% 1.60% 1.48% 1.85%

644-675 3.42% 5.61% 3.45% 3.01% 3.17% 3.70%

600-643 7.10% 11.43% 7.66% 5.86% 6.41% 6.77%

300-599 24.18% 36.05% 23.23% 17.00% 15.98% 13.52%

Extend a line increase or cross-sell offer to 3.2M consumers falling below the 4% bad rate threshold using both Risk Stability IndexSM and VantageScore®


0%

10%

20%

30%

40%

1 2 3 4 5 6 7 8 9 10

Inte

rva

l b

ad

ra

te

Decile

Overall Bad Rate Stable Large Negative Change

Interval bad rates Retail portfolio management

0.0%

1.0%

2.0%

3.0%

4.0%

4 5 6 7

Best scoring Worst scoring


Starting population (359K records)

December 2013 December

2012 December 2011

Jan. – Mar. 2013

New Trade Open 9-11 month

performance

window

12 -month risk stability index

Performance window and definitions Bankcard new account acquisition

Observation point

Performance definitions:





The risk score provides good separation and ranking of bad accounts

Baseline model performance Bankcard new account acquisition

VantageScore®

Range

Total number of


816-839 38,245 36 0.09%

801-815 35,444 38 0.11%

782-800 34,518 64 0.19%

758-781 35,713 104 0.29%

735-757 36,943 162 0.44%

712-734 35,482 228 0.64%

685-711 35,430 404 1.14%

656-684 35,480 685 1.93%

615-655 36,121 1,472 4.08%

333-614 35,516 4,881 13.74%


Risk Stability IndexSM overlay to risk score Bankcard new account acquisition

VantageScore®

Range

Total number of


656-684 35,480 685 1.93%

Overlay risk stability

Large

negative

change

2,718

Bad rate 2.10%

Moderate

negative

change

5,758

Bad rate 2.10%

Stable

15,137

Bad rate

2.06%

Risk Stability IndexSM provides bad rate separation of 1.62% - 2.10%

Moderate

positive

change

7,673

Bad rate 1.62%

Large

positive

change

4,194

Bad rate 1.69%





Number of Consumers

Score

Range

Number of

Consumers

Large neg.

Change

Moderate neg.

Change Stable

Moderate pos.

Change

Large positive

change

816-839 38,245 769 4,637 27,771 4,157 911

801-815 35,444 955 4,312 23,624 5,168 1,385

782-800 34,518 1,230 4,639 20,757 5,842 2,050

758-781 35,713 1,599 5,095 18,860 7,123 3,036

735-757 36,943 2,048 5,482 16,803 8,395 4,215

712-734 35,482 2,471 5,724 15,151 7,892 4,244

685-711 35,430 2,658 6,068 14,702 7,817 4,185

656-684 35,480 2,718 5,758 15,137 7,673 4,194

615-655 36,121 3,183 6,080 15,705 7,049 4,104

333-614 35,516 5,130 6,483 13,867 5,794 4,242






Bad Rate

Score

Range

Bad

Rate

Large neg.

Change

Moderate neg.

Change Stable

Moderate pos.

Change

Large positive

change

816-839 0.09% 0.00% 0.19% 0.07% 0.10% 0.44%

801-815 0.11% 0.21% 0.21% 0.09% 0.04% 0.22%

782-800 0.19% 0.24% 0.09% 0.17% 0.21% 0.49%

758-781 0.29% 0.75% 0.31% 0.24% 0.25% 0.43%

735-757 0.44% 0.49% 0.49% 0.45% 0.42% 0.36%

712-734 0.64% 0.65% 0.65% 0.63% 0.58% 0.80%

685-711 1.14% 1.39% 1.05% 1.10% 1.11% 1.29%

656-684 1.93% 2.10% 2.10% 2.06% 1.62% 1.69%

615-655 4.08% 4.24% 4.14% 4.18% 3.70% 4.07%

333-614 13.74% 16.16% 14.22% 13.79% 12.46% 11.69%


Approve 264,000 consumers falling below the 2% bad rate threshold using both Risk Stability IndexSM and VantageScore®


VantageScore® 12 Month Risk Index Overlay

Bad Rate

Score

Range

Bad

Rate

Large neg.

Change

Moderate neg.

Change Stable

Moderate pos.

Change

Large positive

change

816-839 0.09% 0.00% 0.19% 0.07% 0.10% 0.44%

801-815 0.11% 0.21% 0.21% 0.09% 0.04% 0.22%

782-800 0.19% 0.24% 0.09% 0.17% 0.21% 0.49%

758-781 0.29% 0.75% 0.31% 0.24% 0.25% 0.43%

735-757 0.44% 0.49% 0.49% 0.45% 0.42% 0.36%

712-734 0.64% 0.65% 0.65% 0.63% 0.58% 0.80%

685-711 1.14% 1.39% 1.05% 1.10% 1.11% 1.29%

656-684 1.93% 2.10% 2.10% 2.06% 1.62% 1.69%

615-655 4.08% 4.24% 4.14% 4.18% 3.70% 4.07%

333-614 13.74% 16.16% 14.22% 13.79% 12.46% 11.69%


Starting population (838K records)

December 2013 Dec.

2012 June 2011

12 month

performance

window

Performance window and definitions Bankcard Prospecting

Observation point

Performance definitions: All trade performance




18 -month risk stability

average score change

Oct.

2012

Mar.

2013

Population with a bankcard inquiry from Oct. – Dec. 2012 with no new open bankcard trade

between Oct. 2012 and Mar. 2013


Risk Stability IndexSM overlay to risk score Refining prospecting strategy – bankcard

VantageScore® Average Score Change Across 18 Monthly Scores Overlay

Number of Consumers

Score

Range

Number of

Consumers

Very

Stable Stable

Moderately

Unstable Unstable

Severely

Unstable

700-839 340,067 92,485 116,698 66,288 34,411 30,185

680-699 51,909 8,282 15,599 12,581 8,219 7,228

670-679 28,410 4,807 8,226 6,671 4,656 4,050

660-669 30,703 5,362 8,669 7,322 5,109 4,241

650-659 31,894 5,577 8,947 7,446 5,435 4,489

640-649 32,263 5,846 8,843 7,335 5,620 4,619

630-639 30,102 5,518 8,039 6,683 5,459 4,403

620-629 27,458 5,036 7,006 6,144 5,093 4,179

610-619 25,801 4,685 6,317 5,600 5,086 4,113

600-609 24,729 4,325 5,592 5,524 4,988 4,300





Bad Rate

Score

Range

Bad

Rate

Very

Stable Stable

Moderately

Unstable Unstable

Severely

Unstable

700-839 1.15% 0.88% 1.00% 1.27% 1.70% 1.65%

680-699 3.97% 3.43% 3.37% 4.01% 4.81% 4.84%

670-679 5.19% 4.74% 4.28% 4.93% 6.06% 6.99%

660-669 6.26% 5.46% 5.56% 5.89% 7.67% 7.66%

650-659 7.56% 6.28% 6.12% 7.78% 8.78% 10.16%

640-649 8.84% 7.46% 7.31% 9.18% 10.12% 11.45%

630-639 10.11% 7.70% 8.42% 10.06% 12.38% 13.49%

620-629 12.16% 7.96% 10.05% 12.53% 15.33% 16.37%

610-619 14.19% 9.93% 11.54% 15.41% 16.81% 18.21%

600-609 16.64% 12.18% 13.89% 17.49% 19.05% 20.84%



Risk stability can add value to a current risk score

► Acquisition

► Portfolio management

Risk stability can be implemented using the Risk Stability IndexSM or you can drill into the more detailed 18 months of scores

Findings


For additional information, please contact:

[email protected]

[email protected]

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vision 2014: improving your approval and account management strategies using trended risk stability...

Economy & Finance

change moderate neg

bad rate separation

consumers large neg

risk score adds

credit score influence

risk stability indexsm

risk scores relationship

risk score bankcard