Jun 2020 | Credit decisioning and scoring | Credit Decisions
By Posted by Experian

Are your scorecards robust and relevant enough?

We’ve undertaken significant analysis around the impact of COVID-19 on the Delphi score profile, exploring its accuracy and ability to withstand change. Our analysis evidences that the score outperforms expectations and remains the strongest available indicator of risk.

Developed to meet logical as well as statistical validity checks, our Delphi scorecards have been designed to continue performing, however extreme the economic conditions. As a result, they continue to discriminate strongly between good and bad risk applicants, even in our much-changed world.

Below is a summary of the key scenarios used within the testing, as well as the key findings seen during the analysis.

The evidence behind the conclusion:

The study has been completed on our most widely used scorecard – Generation 10 Delphi for New Business (Delphi NB) Banking & Finance Sco

recard with CII (consumer indebtedness index), along with a sample of 100,000 random banking and finance applications made during 2019

Based on the trends we’re already seeing emerge from the crisis, such as decreased credit searches and declining application volumes and quality, the study analysed the data against several likely scenarios, showing how each would impact Delphi NB scores.

The study made several key assumptions. Including:

  • Increasing balances
  • Rising numbers of consumers with revolving balances
  • Searches remaining at a low level.
  • It assumed that while emergency payment freeze measures would lower the number of accounts in early arrears in the short term, these are likely to spike significantly – along with collections cases – once the freeze period ends.

To perform the analysis, our experts looked at:

  • Likely impacts both during the containment (social distancing) phase and beyond it.
  • What happens when the number of searches is reduced by one across all search characteristics, and what happens when it’s similarly reduced by three?
  • The likely impact of an increase in revolving credit balances
  • An overall picture of likely impact – based on making 3 fewer searches and 30% having an increased revolving credit balance.
  • How factors impacted CII and the anticipated arrears spike once payment freezes end
  • How several post-containment arrears scenarios would impact bad rates – the number of people who are high risk and starting to show signs of default.

They found that:

  • Reduced searches had a greater impact in the lower score bands, whilst increased balances have an impact across the distribution
  • Overall, the proportion of consumers with low indebtedness looks likely to fall, while the proportion with higher indebtedness rises.
  • Across a range of scenarios, increased arrears made a significant impact on Delphi NB scores.

They concluded that a combination of these factors would result in a significant proportion of applicants slipping into the lowest credit score category. But, while bad rates look set to rise across the whole score range, in the scenarios analysed, most of the total increase will come from the lower score bands.

Sharpened tools, expert support

As our study shows robust scorecard systems have the power to reveal a great deal about the consumer landscape and are an incredibly powerful tool in putting together strategies for reducing risk while fostering much-needed new growth.

A review of your scorecard and segmentation, along with analysis of your cut-off criteria, can help make sure you’re accepting the right customers for your risk appetite, even in a reduced pool. We can provide scorecard monitoring and consultancy services that help you take stock of how your risk policies are performing and what changes are needed in your own scoring strategies.

If you’d like the expert support to do that with confidence, Experian is, as ever, right by your side. We can provide scorecard monitoring and consultancy services that help you take stock of how your risk policies are performing and what changes are needed.