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Credit Scores to Predict Behavior

By Sally Maison
Published: Friday, June 7th, 2013

Determination of credit scores is a difficult procedure that takes into account the past credit history to develop future predictions. This requires thorough analysis of information from credit bureaus for understanding the present position of the consumer. Not all data are crucial in this regard. Therefore, segregation of relevant data for predicting credit behavior in the future is required.

In general, most people continue with their spending habits whether it is good or bad for years at a stretch. Building up of scoring models based on such habits becomes easy. It is easy to forecast that a person with good credit is going to continue with the same in the coming times. Difficulties arise when one needs to find out consumers having bad credit records but can become low risk later. Similarly, pointing out people with stellar financial record presently, but headed towards financial problems is rather difficult task.

There is a specific method for building such predictions and is known as, “two-snapshot” process. Here through observation of credit reports of specific consumers during the commencement and the end of a 2-year period forecast regarding financial behavior is possible. Through their findings, analysts were able to point out that a person who has late payments presently has a high chance of filing for bankruptcy within the next two years.
Such crucial information becomes a factor during credit scoring and a part of such scoring formula. Most predictive factor finds a place on the scorecard and gets points in accordance with related predictive values. Credit score is nothing but the sum of all these points related to such factors. Credit scores are consumer associated financial risks.

Through analysis of varied credit scores, experts can predict consumer behavior to an accurate degree nowadays. Consumers posing low financial risks on a long-term basis include people who make timely payments, have low card balances, and substantial credit experience. They also occasionally go for the opening of new accounts and show good credit experience mix.

Through credit scores lenders are able to distinguish between good and risky borrowers. They may find people who are financially safe on a constant basis and those who are sure to demonstrate these traits in the future.

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