Retail Credit

This chapter covers retail credit, which has different data and modelling needs than wholesale. (1) Scorecard terminology—presented is a points-based model (other forms are acknowledged). The goal is to identify rare events, e.g. loan defaults, liquidations, bankruptcies or other undesirable outcomes. (2) Retail models—types across the credit cycle {solicitation, origination, collection, recovery, fraud}, what is being measured {risk, response, retention, revenue}, whose data is used {bespoke, generic, pooled, borrowed} and how it is done {empirical, hybrid, expert judgment}. (3) Data sources—focus is on credit bureaux and credit registries, their spread across various countries, ownership types of credit bureaux and some behind their establishment and spread. (4) Risk indicators—presentation of scores to end-users or downstream processes, as distinct from risk grades. (5) FICO scores—provided by major credit bureaux, with details of different versions and types, plus an imperfect formula for converting their scores into probabilities.