| TransUnion Bankruptcy Risk Management |
| By Credit Federal |
Published
07/13/2008
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Credit Report
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TransUnion Improves Ability to Identify Bankrupt Accounts
Remember the days when you; as a consumer, would scrutinize banks, credit card companies and other financial institutions to find the best deal? And remember when when you found a better deal you'd dump your current creditor or lender? Now; in efforts to maximize profits, creditors and lenders are doing the same thing with consumers, and are using tools like those provided by TransUnion and other credit report agencies.
TransUnion launched its newly updated TransUnion Account Management and TransUnion New Account scoring models, to identify bankrupt accounts by up to 32%.
The Account Management Model is built specifically to help the financial industry manage existing credit accounts while enabling them to identify the most profitable current accountholders. The third version of this model, which also predicts the likelihood of an existing accountholder becoming 90 days or more delinquent in a 24 month period, revealed a 32.1 percent improvement in identifying bankrupt accounts in the lowest 5 percent of scores.
The third edition of the New Account Model, designed with advanced characteristic evaluation and scorecard segmentation for risk assessment of new prospects and applicants, differs from the Account Management Model by predicting the likelihood of a prospective applicant becoming 90 days or more delinquent in a 24 month period.
"It is integral to our business customers that our scoring models provide the necessary insight that is relevant in today's dynamic and challenging financial market," said Chet Wiermanski, group vice president, Analytic and Decision Services. "While results on portfolios may differ, our latest scoring models have proven to be quite valuable for the financial services industry. As the use and application of consumers' credit information evolves and expands to new, financial-related vertical markets, the improved performance in both models continues to reinforce that TransUnion risk solutions continue to meet and exceed the demands of today's market."
TransUnion conducted a Kolmogorov-Smirnov (K-S) test to determine the ability of the newest models to separate good accounts from bad accounts across the entire score range. Using the K-S test, the Account Management Model outperformed the previous model by 5.3 percent. Furthermore, the test found that the Account Management Model surpassed its predecessor in improving efficiency by 34.2 percent when identifying accounts 60 or more days delinquent in the lowest 5 percent of scores. "With credit delinquency rates either at or near their highest levels in recent history, it's vital for businesses to be aware of potentially poor producing accounts," said Wiermanski.
The validation of the Account Management Model utilized more than 7.9 million consumer credit files from leading companies in the auto, bankcard, banking, credit union, installment, mortgage, non-credit union, personal and other finance, retail and revolving industries. Data was taken from two sets of development performance periods to minimize effects of seasonality and to create an observation and performance period for testing purposes.
In addition to the Account Management Model, TransUnion updated its New Account Model with much success. Utilizing the K-S test, the latest New Account Model outperformed its predecessor by 4 percent. The New Account Model also achieved improved results from its earlier adaptation, including:
- Identifying as many as 16 percent more bankrupt accounts in the retail industry in the lowest 15 percent of scores.
- Improving efficiency by 5 percent in identifying charged-off and bankrupt accounts at the lowest 5 percent of scores.
"The value of the New Account Model is even greater in today's business climate as the ability to identify profitable new prospects can significantly impact a company's balance sheet," said Wiermanski.
The New Account Model test included a development sample consisting of 2.6 million consumer credit files with at least one new account opened within six months of observation from the same industries featured in the Account Management Model analysis. Like the Account Management Model test, two sets of development performance periods were used to minimize effects of seasonality.
Key Account Management Model Features
- Score range: 150-950 (high score represents a lower risk)
- Scorecard design: 10 scorecards, scorecard selected at the time of scoring
- Performance period: 24-month performance period
Key New Account Model Features
- Score range: 150-950 (high score represent a lower risk)
- Scorecard design: 12 scorecards, the scorecard is selected at the time of scoring
- Performance period: 24-month performance period
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