Magazine article American Banker

Predicting Bankruptcy Risk: Software Taps 3 Credit Bureau

Magazine article American Banker

Predicting Bankruptcy Risk: Software Taps 3 Credit Bureau

Article excerpt

With consumer bankruptcy filings still high and competition putting a squeeze on credit card profitability, an Atlanta firm is marketing a refined version of its computer models for assessing bankruptcy risk.

MDS, a major provider of credit and marketing programs, has developed a new method of applying its bankruptcy models, which were first introduced in 1987. Bankers at the MDS booth at the recent American Bankers Association national bank card, conference in Washington were showing strong interest.

The new system enables bankers to combine their existing risk tools with one of three MDS models, each based on data from one of the three leading credit bureaus.

|An Incremental Benefit'

"The behavioral score that issuers are using alone has X amount of benefit, and the bureau score used alone has X amount of benefit, but used together, issuers can realize an incremental benefit," a spokeswoman for MDS said.

Bankruptcies cost card issuers $2.65 billion in 1992, according, to the Nilson report, so there is plenty of room from incremental savings if a system can accurately predict bankruptcies.

Indeed, there is some evidence that such models, including competing products offered by Fair, Isaac & Co. of San Rafael, Calif., already are having an impact.

Bankruptcy Filings Dropping

"I would attribute some of the, decline in bankruptcies to the effectiveness of such models," said Robert W. Johnson, senior, research associate at the Credit Research Center at Purdue University. …

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