Using a transactor/revolver scorecard to make credit and pricing decisions

Authors:
Mee Chi So;Lyn C. Thomas;Hsin-Vonn Seow;Christophe Mues
Affiliations:
Southampton Management School, University of Southampton, Southampton SO17 1BJ, United Kingdom;Southampton Management School, University of Southampton, Southampton SO17 1BJ, United Kingdom;Nottingham University Business School Malaysia, University of Nottingham Malaysia Campus, Jalan Broga, 43500 Semenyih, Selangor Darul Ehsan, Malaysia;Southampton Management School, University of Southampton, Southampton SO17 1BJ, United Kingdom
Venue:
Decision Support Systems
Year:
2014

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Abstract

In consumer lending the traditional approach is to develop a credit scorecard which ranks borrowers according to their risk of defaulting. Bads have a high risk of default and Goods have a low risk. To maximise the profitability of credit card customers, a second classification between revolvers and transactors becomes important. Building a transactor/revolver scorecard together with a Good/Bad scorecard over the revolvers, gives rise to a risk decision system whose ranking of risk is comparable with the standard approach. The paper develops a profitability model of card users including the transactor/revolver score leads. This gives more accurate profitability estimates than models which ignore the transactor/revolver split.