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Date:         Mon, 19 Feb 2007 15:28:22 +0000
Reply-To:     John Whittington <John.W@MEDISCIENCE.CO.UK>
Sender:       "SAS(r) Discussion" <SAS-L@LISTSERV.UGA.EDU>
From:         John Whittington <John.W@MEDISCIENCE.CO.UK>
Subject:      Re: Credit Bureaus--Legal Liability and Model Validation
Comments: To: Tom White <tw2@MAIL.COM>
In-Reply-To:  <20070219150127.1CF441BF297@ws1-1.us4.outblaze.com>
Content-Type: text/plain; charset="us-ascii"; format=flowed

At 10:01 19/02/07 -0500, Tom White wrote (in small part):

>We are talking now about Credit Bureau scores which presumably assess >customer's behavior and likelihood of default. If a person has a stellar >past behavior in terms of paying bills, why would this one bad thing cause >such a precipitous drop to one's score from say, 720 to 610 or so?

At risk of being accused of wasting SAS-L bandwidth, and certainly without any expert knowledge in this area, I can certainly lend my support to those who have expressed the view that recent information should, at least in some situations, be given considerable weighting in credit-scoring models.

People with persistently poor credit ratings are probably relatively rare - and, in any event, are easy to identify, with or without statistical models. I would suggest that, particularly in recent times, a far more common picture is for someone to have a long history of a good credit rating and then, at some point in time, and for whatever reason, run into financial difficulties and hence suddenly, maybe for the first time, develop an unfavourable entry on his credit rating. If I were a potential lender, I think I'd probably be more concerned about someone who had just exhibit his/her first 'credit problem', after years of having a pristine record, than I would be concerned about someone who had more-or-less successfully 'muddled along' with a mediocre credit rating for some considerable time - on the basis that the recent change could herald the start of a 'downward slide'.

Perhaps the most important thing to say is that these statistical models are not (as seems to be being suggested) generally based on hypothesis but, rather, on historical data. If (perhaps by the mechanism I've described) past experiences are that a sudden change in credit information is of more concern than a long-term sub-optimal credit history, then the history-based models will reflect that experience.

... my few, rather 'OT', thoughts!

Kind Regards,

John

---------------------------------------------------------------- Dr John Whittington, Voice: +44 (0) 1296 730225 Mediscience Services Fax: +44 (0) 1296 738893 Twyford Manor, Twyford, E-mail: John.W@mediscience.co.uk Buckingham MK18 4EL, UK ----------------------------------------------------------------


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