vision 2014: expand your consumer universe and improve profitability
DESCRIPTION
Learn how lenders are expanding their universe, increasing approvals and maximizing profitability by using Experian’s VantageScore® 3.0. We will discuss the significant improvements made within VantageScore 3.0 and what that means for your business. We also will present case studies and a return on investment analysis for lenders that currently are leveraging this data. VantageScore® is a registered trademark of VantageScore Solutions, LLC.TRANSCRIPT
© 2014 Experian Information Solutions, Inc. All rights reserved. Experian and the marks used herein are service marks or registered trademarks of Experian Information Solutions, Inc.
Other product and company names mentioned herein are the trademarks of their respective owners. No part of this copyrighted work may be reproduced, modified, or distributed in
any form or manner without the prior written permission of Experian. Experian Public.
Expand your consumer universe and improve profitability
Paul DeSaulniers Experian
Kelley Motley Experian
#vision2014
2 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
The recent financial crisis has reshaped the lending environment.
Focus on model governance to ensure mandated regulatory compliance
New emphasis on consumer education, model transparency, and inclusive lending practices
Importance of controlled growth that balances expansion with risk mitigation
Need for agile and flexible operational processes without single-threaded dependencies
Now is the time to challenge your consumer risk score.
1. Is your model geared to support expanding regulatory compliance?
2. Are you able to meet the growing demands for consumer transparency and education?
3. Does your model deliver superior and stable predictive power in the current economic and business environment?
4. Are you mitigating operational risks which can cause major disruptions in your business?
5. Are you partnering with a data and analytics expert who understands how to leverage the full power of traditional and emerging credit data to increase predictiveness?
Today’s reality
3 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Greater prediction through the use of enhanced data elements and more granular data
Increased coverage by scoring 30-35 million more consumers over a traditional risk score
Easy-to-implement with a familiar industry recognized score range
More consistent results of the score across all three credit reporting companies
Optimized for origination and account management uses
Stable model for consistent results across timeframes
VantageScore® 3.0 Highlights
4 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
VantageScore® 3.0 Performance metrics
VantageScore® 3.0
KS in the high 50’s and 60’s
GINI’s into the 80’s
Captures over 75% of all bads in the lowest
scoring 20%
More accurately classifies consumers who may
be inaccurately categorized as subprime
► An Experian study shows 2.5 million
consumers being reclassified from subprime
into higher score intervals
Lift in 90+ DPD captured at 20% – overall
64.7%
62.6%
VantageScore® 3.0 Scorex PLUS
75.7%
69.8%
5.9 %
Lift over
Scorex PLUS
Statistics Overall Bankcard Mortgage Auto
KS 63.4 65.7 61.7 59.5
GINI 79.2 81.3 77.8 75.4
Bads captured
in lowest 20% 75.8% 80.8% 75.3% 72.3%
CRC = Credit Reporting Companies
5 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
VantageScore® 3.0 Universe expansion
U.S. consumers (millions)
Scoreable Universe
VantageScore® 3.0 newly scored
Legacy models *
170
35
VantageScore® 3.0 includes traditionally excluded consumers:
► Infrequent credit users
► New entrants
► No recent activity
► No open trades
VantageScore® 3.0 scores 30–35 million
more consumers over conventional models
*= Based to published exclusion criteria
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VantageScore® 3.0 utilizes familiar 300–850 scale
Scaled to accommodate existing systems
Research was conducted with both lenders and consumers, with each audience indicating a preference for the 300–850 scale
While lenders individually determine their own credit quality cutoffs, the credit tier breakdown below is offered only as an approximation:
► 781–850 Super prime
► 661–780 Prime
► 601–660 Non-prime
► 500–600 Subprime
► 300–499 Deep subprime
VantageScore® 3.0 Score ranges
Prime: 661 and above
Non-prime: Below 660
7 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Population distribution of scoreable consumers
5%
27%
13%
34%
21%
0%
5%
10%
15%
20%
25%
30%
35%
40%
300-499 500-600 601-660 661-780 781-850
VantageScore® 3.0 population distribution
Implementing a 631 score cut, the interval bad rate is <8%,
encompassing 62% of the population
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All numeric adverse action codes; fewer than 80 definitions
Adverse action codes rewritten to be more consumer-friendly and understandable
► Clear understanding of what impacts a consumer’s VantageScore® credit score
► ReasonCode.org website is an educational resource for consumers
VantageScore® 3.0 Easier to adopt adverse action codes
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Expand your consumer
universe and improve
profitability with
VantageScore® 3.0
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Analytical objective
To answer the following: How many applicant records can be scored using VantageScore® 3.0, where my traditional model was not able to provide a valid score?
► Who are these consumers?
► How do these new consumers perform?
► How many of these consumers can I approve given my current approval criteria?
VantageScore® 3.0 Analysis overview
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Analysis overview
Review of existing and new consumer accounts
► Retail new account acquisition
► Bankcard existing account portfolio management
VantageScore® 3.0 Analysis overview
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Model performance
Performance
definitions
Bad
Consumers 90+ days
delinquent or worse
Good
Consumers current or 30
days delinquent (<60 DPD)
Indeterminate
Consumers 60 days
delinquent (<90 DPD)
Dec 2011 Observation date
Dec 2013
24-month performance window
Performance
Existing account management
Dec 2011
Date opened
Jan. – Mar.
Dec 2013
21- to 23-month performance window
Performance
New account acquisition
Observation date
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Bankcard – existing account management Scoring totals
99.33% scoreable using
VantageScore® 3.0 as compared
to 98.36% scoreable using a
competitive score
Sample: National
randomly selected –
6,524,894 records
VantageScore® 3.0
Total
6,481,377
Good
5,956,009
Bad
431,869
Indeterminate
93,499
Competing risk score
Total
6,417,611
Good
5,898,930
Bad
426,075
Indeterminate
92,606
14 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Let’s first look at the population scoreable by both models
Bankcard – existing account management Accounts scored by both models
VantageScore® 3.0
Total
6,481,377
Competing risk score
Total
6,417,611
Scoreable by both models
Total
6,417,584
Good
5,898,910
Bad
426,070
Indeterminate
92,604
15 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Bankcard – existing account management KS comparison Accounts scored by both models
62.67
59.19
55
60
65
KS
sta
tisti
c
VantageScore® 3.0
Competing risk score
Vantage Score® 3.0 shows better separation
of good and bad accounts (higher KS)
16 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Bankcard – existing account management Cumulative bad lift chart Accounts scored by both models
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Cu
mu
lati
ve %
of
bad
acco
un
ts
Cumulative % of accounts
VantageScore® 3.0 Competing risk score Baseline
VS3 KS:
62.67
Other KS:
59.19
17 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Bankcard – existing account management Percent bad capture Accounts scored by both models
The ability of a model to
push the largest percent of
bads to the lowest scoring
ranges is a hallmark of
scorecard performance.
55.4%
76.4%
87.1%
51.1%
72.8%
84.4%
40%
50%
60%
70%
80%
90%
100%
10% 20% 30%
% b
ad
acco
un
ts
Worst scoring
VantageScore® 3.0 Competitive score
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Bankcard – existing account management Rank ordering Accounts scored by both models
0%
10%
20%
30%
40%
50%
60%
5% 25% 45% 65% 85%
Inte
rval
bad
rate
VantageScore® 3.0 Competing risk score
Overall bad rate: 6.64%
Bad rate should steadily increase as you move into lower scoring
intervals, creating a smooth, monotonic progression. This is a measure
of model performance, as well as scorecard stability.
Twentiles Best scoring Worst scoring
19 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Now, let’s look at the population uniquely scoreable by VantageScore® 3.0
Bankcard – existing account management Accounts only scored by VantageScore® 3.0 (unique)
VantageScore® 3.0
Total
6,481,377
Competing risk score
Total
6,417,611
Uniquely scoreable by VantageScore® 3.0
Total
63,793
Good
57,099
Bad
5,799
Indeterminate
895
20 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Bankcard – existing account management Lift chart Accounts only scored by VantageScore® 3.0
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Cu
mu
lati
ve %
of
bad
acco
un
ts
Cumulative % of accounts
VantageScore® 3.0 Baseline
KS score:
48.53
21 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Bankcard – existing account management Percent bad capture Accounts only scored by VantageScore® 3.0
33.1%
59.9%
73.3%
0%
10%
20%
30%
40%
50%
60%
70%
80%
10% 20% 30%
% b
ad
acco
un
ts
Worst scoring
VantageScore® 3.0
The ability of a model to
push the largest percent of
bads to the lowest scoring
ranges is a hallmark of
scorecard performance.
22 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Bankcard – existing account management Rank ordering Accounts only scored by VantageScore® 3.0
0%
10%
20%
30%
40%
50%
10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Inte
rval
bad
rate
VantageScore® 3.0
Deciles Best scoring Worst scoring
Overall bad rate: 8.26%
Bad rate should steadily increase as you move into lower scoring
intervals, creating a smooth, monotonic progression. This is a measure
of model performance, as well as scorecard stability.
23 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Bankcard – existing account management Comparing the consumers scoreable only by VantageScore® 3.0 to those scoreable by both models
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Scored by both models Uniquely scored by VS3
Twentiles Best scoring Worst scoring
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Bankcard – existing account management Comparing the consumers scoreable only by VantageScore® 3.0 to those scoreable by both models
0%
10%
20%
30%
40%
50%
60%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Scored by both models Uniquely scored by VS3 Int. bad rate scored by both models
Int. bad rate scored by VS Overall bad rate
42% of the population, traditionally not scored, can be approved
Twentiles Best scoring Worst scoring
25 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Retail – new account origination Scoring totals
99.64% scoreable using
VantageScore® 3.0
as compared to 97.4% scoreable
using a competitive score
Sample: National
randomly selected –
410,685 records
VantageScore® 3.0
Total
409,200
Good
383,613
Bad
20,101
Indeterminate
5,486
Competing risk score
Total
400,024
Good
375,922
Bad
18,850
Indeterminate
5,252
26 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Let’s first look at the population scoreable by both models
Retail – new account origination Accounts scored by both models
VantageScore® 3.0
Total
409,200
Competing risk score
Total
400,024
Scoreable by both models
Total
400,013
Good
375,917
Bad
18,846
Indeterminate
5,250
27 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Retail – new account origination KS comparison Accounts scored by both models
52.74
50.76
45
50
55
KS
sta
tisti
c
VantageScore® 3.0
Competing risk score
Vantage Score® 3.0 shows better separation
of good and bad accounts (higher KS)
28 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Retail – new account origination Cumulative bad lift chart Accounts scored by both models
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Cu
mu
lati
ve %
of
bad
acco
un
ts
Cumulative % of accounts
VantageScore® 3.0 Competing risk score Baseline
VS3 KS:
52.74
Other KS:
50.76
29 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Retail – new account origination Percent bad capture Accounts scored by both models
43.3%
65.1%
79.6%
39.6%
62.4%
77.3%
30%
40%
50%
60%
70%
80%
90%
10% 20% 30%
% b
ad
acco
un
ts
Worst scoring
VantageScore® Competitive score
The ability of a model
to push the largest
percentage of bads
to the lowest scoring
ranges is a hallmark
of scorecard
performance.
30 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Retail – new account origination Rank ordering Accounts scored by both models
0%
5%
10%
15%
20%
25%
30%
35%
5% 15% 25% 35% 45% 55% 65% 75% 85% 95%
Inte
rva
l b
ad
ra
te
VantageScore®3.0 Competing risk score
Twentiles Best scoring Worst scoring
Overall bad rate: 4.71%
Bad rate should steadily increase as you move into lower scoring
intervals creating a smooth, monotonic progression. This is a measure
of model performance as well as scorecard stability.
31 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Now, let’s look at the population uniquely scoreable by VantageScore® 3.0
Retail new account origination Accounts only scored by VantageScore®
VantageScore® 3.0
Total
409,200
Competing risk score
Total
400,024
Uniquely scoreable by VantageScore® 3.0
Total
9,187
Good
7,696
Bad
1,255
Indeterminate
236
32 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Retail – new account origination (unique) Lift chart Accounts only scored by VantageScore®
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Cu
mu
lati
ve %
of
bad
acco
un
ts
Cumulative % of accounts
VantageScore® 3.0 Baseline
KS score:
30.29
33 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Retail – new account origination (unique) Percent bad capture Accounts only scored by VantageScore®
21.0%
35.8%
51.8%
0%
10%
20%
30%
40%
50%
60%
10% 20% 30%
% b
ad
acco
un
ts
Worst scoring
VantageScore®
The ability of a model to
push the largest percent
of bads to the lowest
scoring ranges is a
hallmark of scorecard
performance.
34 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Retail – new account origination (unique) Rank ordering Accounts only scored by VantageScore® 3.0
0%
10%
20%
30%
40%
10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Inte
rval
bad
rate
VantageScore® 3.0
Deciles Best scoring Worst scoring
Overall bad rate: 14.09%
Bad rate should steadily increase as you move into lower scoring
intervals, creating a smooth, monotonic progression. This is a measure
of model performance, as well as scorecard stability.
35 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Retail – new account origination Comparing the consumers scoreable only by VantageScore® 3.0 to those scoreable by both models
0%
5%
10%
15%
20%
25%
30%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Scored by both models Uniquely scored by VS3
Twentiles Best scoring Worst scoring
36 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Retail – new account origination Comparing the consumers scoreable only by VantageScore® 3.0 to those scoreable by both models
0%
5%
10%
15%
20%
25%
30%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Scored by both models Uniquely scored by VS3 Int. bad rate scored by both models
Int. bad rate scored by VS Overall bad rate
5.1% of the population, traditionally
not scored, can be approved
Twentiles Best scoring Worst scoring
37 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Comparison of uniquely scored VantageScore® 3.0 records to those scored by both models
New accounts
Unique VantageScore® 3.0
consumers
Consumers scored
by both models
Age 36 years 47 years
Homeownership 31% 58%
Length of residence 8.3 years 10.3 years
Presence of children 41% 35%
Income InsightSM (Credit) $42,228 $87,705
Existing accounts
Unique VantageScore® 3.0
consumers
Consumers scored
by both models
Age 57 years 51 years
Homeownership 47% 63%
Length of residence 11.7 years 11.6 years
Presence of children 26% 31%
Income InsightSM (Credit) $46,490 $98,265
38 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Bankcard – account management
VantageScore® 3.0 scores 1% more accounts than the competing risk score
6% lift in Kolmogorov-Smirnov (KS) performance
3.2% lift in bads captured in worst scoring 30%
Retail – account acquisition
VantageScore® 3.0 scores 2.3% more accounts than the competing risk score
3.9% lift in Kolmogorov-Smirnov (KS) performance
3.0% lift in bads captured in the worst scoring 30%
VantageScore® 3.0 vs. competing risk score Summary
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