Experian analysis shows that, while credit scoring models are still accurately predicting risk very well, the score calibrations are shifting with the changing economy and the size of the shift varies by geography and socioeconomic group.
With the development of Future Delphi, Experian has combined its strength in predictive analytics with current and predicted economic data to deliver the most accurate credit score possible.
Future Delphi can now deliver a range of individual and portfolio level risk tools which are adjusted
for the current and future state of the economy:
- Default rate estimates at the individual, segment or portfolio level.
- A transparent mechanism for loss forecasting and stress testing portfolio performance.
- Industry level benchmarking conducted in the context of current and future economic conditions.
Benefits of Future Delphi
- Make better, safer credit lending decisions to increase profitability and reduce risk exposure
- Better capital management from better estimates of future credit default probabilities
- Planning and budgeting – average loss per default can be more accurately forecast
- Reduce operational costs from less bad debt and more consistent, stable credit scoring
New business – make decisions on credit applications in the light of future economic circumstances.
Customer management – make more profitable decisions on credit limits, credit risk exposure and cross and up-sell.
Collections – gain a deeper understanding of a delinquent customer’s circumstances to set
an appropriate debt collection strategy.
Loss forecasting – more robust loss forecasts at the individual, segment or portfolio level.
Stress testing – assess the impact of differing stress scenarios on portfolio performance.
Today, credit scoring is an integral part of most lending decisions. It relies on the assumption that the past predicts the future and Experian analysis shows these credit scores continue to perform very well.
However, in times of economic change, the past may not be a good guide to the future.
Experian research suggests that this is the case today and that this is reflected in an upward drift in the relationship between default rate and credit score. Consumer behaviour is being affected in different ways across the socio-economic and geographic groups and existing scores do not capture this fully.
Building economic data into credit scoring models mitigates this problem by linking credit performance of the individual to the wider economy.