Let me try something here. I’m going to write down a bad credit score, and you tell me the odds that consumer will end up defaulting on a credit account. Ready?

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550

What do you think? My “pop culture” sense of a credit score that low will default 80% of the time. Your guess may vary from that. But the general vibe is: you’ll lose some money with this customer.

However, that’s not really the case. I found a terrific analysis of serious delinquency rates by VantageScore. Take a look at the payment performance by score bands.

Look at the bottom two bands, 300-550 and 551-610. Both of those are considered low credit scores. Large, mainstream banks will avoid lending to customers in that part of the credit spectrum. In both cases though, the majority of customers will actually be healthy, performing accounts.

The challenge of course? How to know which applicants will be the healthy ones?

Scorenomics Alternative Data Credit Scoring

Scorenomics BeyondMyScore (BMS) is a financial health engagement platform. Offered through consumers’ credit account providers, BMS provides insight into different facets of good financial health. During the consumer’s engagement with BMS, data in real-time is captured that is predictive of future payment performance.

How did we do this? We have results for 17,000 different credit card accounts that completed BeyondMyScore. These were already-approved customers in good standing at the time they completed BMS. We know how these accounts paid over the course of 16 months. Note: these 17,000 customers have an average FICO of 625. Their 12.0% chargeoff performance would be similar to that of customers in the lower part of the VantageScore 611-670 band.

These results allowed us to build a statistical model to segment the population on risk. The chart below shows the segmentation for the holdout test accounts.

The ratings segment on chargeoffs at a statistically significant level (p-value = 0.0002). A risk rated 1 account is a meaningfully better risk than is a risk rated 3 account. Note the average FICO scores displayed for each risk rating. They are all similar, in the 625 range. The Scorenomics Risk Rating is providing new information beyond the credit bureau score, which helps segment seemingly similar customers.

What’s the value of having this new information on creditworthiness? Approving more marginally declined applicants! We’ll discuss that in a subsequent blog post.

Click here to find out how Scorenomics BeyondMyScore^® can help you find profitable growth among your marginally declined customers.

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