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A study in the combination of two consumer credit scores

Author

Listed:
  • H Zhu

    (University of Virginia)

  • P A Beling

    (University of Virginia)

  • G A Overstreet

    (University of Virginia)

Abstract

Credit scores measure the creditworthiness of individuals in a population of interest. In this paper, we employ the concepts of sufficiency and extraneousness to study the conditions under which scoring results can be improved through the combination of individual scores. The concept of sufficiency is used to identify scores that are dominant. Extraneousness is used to determine whether a particular score provides additional useful information relative to other scores. In addition, we employ a profit-based utility measure to evaluate the performance of different scores. We investigate the performance of a regression-based combination of a bureau credit score and an application credit score on a large historical data set. Our results show that the bureau score is dominated by the application score, but the bureau score is not extraneous to the combination. Thus, both scores contribute to the combined score, which indeed outperforms both of the scores upon which it is based.

Suggested Citation

  • H Zhu & P A Beling & G A Overstreet, 2001. "A study in the combination of two consumer credit scores," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 52(9), pages 974-980, September.
    • Handle: RePEc:pal:jorsoc:v:52:y:2001:i:9:d:10.1057_palgrave.jors.2601225
    DOI: 10.1057/palgrave.jors.2601225
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    Citations

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    Cited by:

    1. K Rajaratnam & P Beling & G Overstreet, 2010. "Scoring decisions in the context of economic uncertainty," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 61(3), pages 421-429, March.
    2. Li Gan & Roberto Mosquera, 2008. "An Empirical Study of the Credit Market with Unobserved Consumer Typers," NBER Working Papers 13873, National Bureau of Economic Research, Inc.
    3. Lu Gao & Kanshukan Rajaratnam & Peter Beling, 2016. "Loan origination decisions using a multinomial scorecard," Annals of Operations Research, Springer, vol. 243(1), pages 199-210, August.
    4. Andrew R. Sanderford & George A. Overstreet & Peter A. Beling & Kanshukan Rajaratnam, 2015. "Energy-efficient homes and mortgage risk: crossing the chasm at last?," Environment Systems and Decisions, Springer, vol. 35(1), pages 157-168, March.
    5. Finlay, Steven, 2011. "Multiple classifier architectures and their application to credit risk assessment," European Journal of Operational Research, Elsevier, vol. 210(2), pages 368-378, April.
    6. Kanshukan Rajaratnam & Peter Beling & George Overstreet, 2017. "Regulatory capital decisions in the Context of consumer loan portfolios," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 68(7), pages 847-858, July.
    7. P Beling & Z Covaliu & R M Oliver, 2005. "Optimal scoring cutoff policies and efficient frontiers," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 56(9), pages 1016-1029, September.

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