Credit scoring branches out: decision tree - recent technology

Article Abstract:

Decision trees have become a major tool in the evaluation of credit. They are used to predict the probability of repayment by applicants, using demographic and credit bureau information. Eight steps are usually followed in developing a tree: a data sample is collected from the lender, the data are computerized for analysis, an analysis is conducted, ranges of value are assigned to variables, the behavior of rejected applicants is inferred by augmentation to expand the system to cover a total applicant population, the decision tree is identified by statistical analysis, validation of the system takes place, and a tradeoff table is developed. Credit scoring is advantageous in that it is more accurate, reduces costs, provides control over credit extended, increases speed of processing, gives exact probability of repayment, and eliminates factors in the credit process. A credit scoring system is limited by sample size, the information on which it is based, the similarity of the information to the characteristics of the current applicant, and the fact that it is a tool, not a policy. Decision trees represent logic and are easy to monitor and understand.

Decision-making, Decision making, Innovations

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Consumer education: new directions

Article Abstract:

Firms in the financial services industry are finding it necessary to establish consumer education programs to help customers learn about new developments in credit so that customers can achieve their individual credit goals. Rising illiteracy rates coupled with over-aggressive advertising of credit has created a confusing environment for consumers. Financial services companies have an ethical responsibility to educate the public. Some firms, such as American Express, have created consumer cards and pamphlets. Other firms have developed joint partnerships with community groups to develop education campaigns. The campaigns help consumers learn about credit, and they also give companies new marketing opportunities.

Financial services industry, Financial services, Consumer education

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The 1990s - what's ahead

Article Abstract:

Thirteen credit executives, including National Foundation for Consumer Credit pres Donald L. Badders, TRW Credit Data Division VP Edward A. Barbieri, and CSC Credit Services, Inc pres Edward P. Boykin, discuss their forecasts for the 1990s. Badders predicts that efficiency and attention to the bottom line will be important in the credit industry, while Barbieri predicts that the credit reporting industry will need to provide better quality of service to consumers and credit grantors. Boykin forecasts that the technology will be increasingly important for success.

Credit reporting services, Forecasts and trends, 1990s (Decade), panel discussion, Badders, Donald L., Barbieri, Edward A., Boykin, Edward P., National Foundation for Consumer Credit, TRW Inc. Credit Data Div., CSC Credit Services Inc.

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