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

2013; Elsevier BV; Volume: 59; Linguagem: Inglês

10.1016/j.dss.2013.11.002

1873-5797

M.C. So, Lyn C. Thomas, Hsin‐Vonn Seow, Christophe Mues,

Customer churn and segmentation

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.