APPENDIX A: Common Variables Used in Credit Scoring 403‘thought process behind selection of variables for developing score: ‘ards has been covered in detail in a previous chapter. The variables Used are, of course, dependent on the product, segment, country, reg- ulations, and the availability of data from sources such as credit bureau, ‘The following lst is not meant to be exhaustive: it contalns data elements that are most commonly used worldwide for the development of retail ‘credit risk scorecards. Scorecard developers should make sure that a par- ticular data element can be used in ther jurisdictions before using them. Demographics Age Time at residence Time at recent employment © Number of unique addresses last five years © Time in industry or total time in employment Number of ue jobs last five years Postal code; usually grouped using some business lo Residential status Employment status/type Occupation type Industry type Highest education level attained Number of dependents Number of children Marital status Guarantors count © Number of income earners at home Number of borrowers (Owns car? Motorcycle? Collateral Data ‘Type of home being purchased: detached, bungalow, split partment, detached, semi- Some use square footage, number of rooms, age of home, etc 404APPEUDIX A: COMMON VARIABLES USED IN CREDIT SCORING < 405 New home or existing First mortgage for customer or renewal © Flrst, second, or third tien Used or new car Brand of car Mileage on used car ‘Owner occupied/investment Age of used car Internal/Financial Data Number of products internally ® Length of tenures for different types of products at bank Safety deposit box at bank? = Investment account at bank? Salary deposited at bank? Income—normally used in ratios with other vatiables ‘Total assets oral Habilities—used in ratio with assets Net worth; also liquid net worth ‘Total overall debt/income ‘Total monthly debt service amount ‘Total debr service ratio Gross debt service ratio © Revolving debr/total debt (amount and number of products) = Price of car or house divided by ine Loan to value Worst delinquency at bank: for revolving and term loans, and for last 12/24/36 months ‘Time since last 30/60/90 days past due at bank © Number of times 30/60/90 DPD at bank; fr last 12/24136 months © Number of other bank cards ‘Total deposits at bank ® Total depositstotal outstanding balances406) APPENDIX A: COMMON VARIABLES USEO IN CREDIT SCORING Average difference between deposits and withdrawals for differ- ‘ent accounts, done for last 12/24/36 months Average ATM withdrawals, also ratios between current and last 12 months Average withdrawals thru all channels and historical ratios Average deposits last month/last 12 months Behavior score current Behavior score trends: for example, average last 6 or 9 months © Payment last month/average payment last 12 months for revolving loans ‘Months since continuous payment © Rest credit product at bank; mortgage to credit cards hierarchy © Days to payment in collections Average balance at delinquency, by product Number of products prepaid before term, © Utilization of revoh ng facilites at bank and historical ratios Bureau Data Bureau score at at bureau, or age of the oldest trade at the bureau Total inquiries Inquiries last 3/6/12 months—used in multiple ratios Total trades and total open trades ‘Trades opened last 3/6/12 months—used in ratlos with total trades open ‘Total open trades asa ratio of total inquiries within a given time frame Total active trades—also used in ratios Total term trades and total revolving trades—used in ratios with total trades Number of trades current, 30/60/90, etc. days past due—also used in ratios ‘Total credit lines—revolving Total Dalance—revolvingAPPENDIX A: COMMON VARIABLES USEO IN CREDIT sconING < 407 ‘Total utilization—also can be used in ratio across time Worst rating ofall curvent trades; also by time, for example, last 12124 months Time since last 30/60/90 DPD at bureau © Number of public records ‘Type of record: bankruptcy, arest, foreclosure, suits liens, judg ments, or other such records ‘Months oF years since bankruptcy © Number of collection items © Existence of loan from subprime lender ‘Macroeconomic Variables '» GDP: all below used as ratios to determine direction of growth contraction Unemployment Employment Housing starts Consumer price index House price index Inflation Gredit Card Only ‘Time as customer Amount of purchases—used in ratio over time such as average last ‘month divided by average for 3 months, 6 months, 12 months, life ‘Number of transactions and ratios over time Interest income—averaged and used in ratios as in purchases Service fee income ® Amount of payments—used in ratios as in purchases Cash withdrawals: averages, number, and historical ends Percentage payment last month—and used in ratios Spending habits—on staples/total spend and on other categories like fastfood, restaurant, entertainment, luxury stores, etc © Number of Internet transactions and long-term ratios408) APPENDIX A: COMMON VARIABLES USED IN CREDIT Si Internal bank scorecard characteristic candidates (Note P = primary—most predictive; $ = secondary—found in scorecards). (Soure. Abrahams & Zhang, Fair Lending Compliance Intelligence ard Implications for Credit Risk Management (Hoboken, NJ: Wiley, 2008}, 197-199.) exhibit a1 internal Bank Scorecard Characteristic CandidatesAPPENDIX A: COMMON VARIABLES USED IN CREDIT SCORING < 409 Commonly encountered credit bureau scorecard characteristic ‘candidates (Note:P = primary—most predictive; § = secondary—found in scorecard. exhibit 2 Cred Bureau Scorecard Characteristic Candidates LAA