Credit Scoring Systems

Scoring System Development

PMA is an acknowledged leader in the development and creative use of empirically derived and statistically sound credit scoring and behavior scoring systems. Our success in developing custom credit scoring and behavior scoring systems results from both careful definition of objectives and application of appropriate analytic techniques.

Our custom-built credit scoring and behavior scoring systems are used throughout a product's life-cycle and are designed to answer a variety of business questions including: 

  • Which prospects should be solicited?
  • Which applicants should be approved or rejected?
  • Which prospects are likely to respond to a promotional offer?
  • How much revenue/profit will an account produce at key points in its life-cycle?
  • What is the likelihood that a current customer will cancel his/her relationship?
  • Which transactions should be authorized?
  • How much is expected to be recovered from an account currently in collections?

The scoring systems we develop are tailored to specific needs. We will work closely with you to clarify and refine the objectives of the scoring system. We invite your participation throughout the development process. By working as our partner, you can convey the business history and provide context to the data. Moreover, your understanding of how the score was developed will make its implementation more effective. To complement our scoring systems, we offer consulting services to support implementation, launch strategies, and on-going validations.

Scoring System Validation

A fundamental assumption behind all scoring systems is that the past and future are the same. Unfortunately, this assumption is never really true; the world is always changing. Because scoring systems are built using historical data, all scoring systems lose predictive power over time and eventually require redevelopment.

To maintain the performance of a scoring system, its components must be validated on an ongoing basis so that any deterioration can be identified and corrected.

PMA provides scoring system validation for all scoring applications. We use industry standard diagnostic tools to measure the reliability and validity of a scoring system. Our scoring system validations cover three crucial areas:

  • Scorecard and Characteristic Discriminant Power: Our tests measure the power of the scoring system -- and each of the characteristics in the scoring system -- to separate the "good" and "bad" populations. We use various statistical performance measures, such as the Komolgorov-Smirnov (K-S) test, to measure the ability of the score to separate goods and bads and provide the expected "lift" between low and high scoring segments.
  • Scorecard and Characteristic Stability: Economic climates and business enviroments change. These changes can influence population distributions and affect the performance of a scoring system. To determine if a scoring system can continue to be used effectively, the stability of the target population needs to be measured. The PMA Population Stability Index™ measures the degree of change within the target populations, both for the overall scoring system, and for each characteristic in the scoring system. High index values indicate the population has changed and may suggest the scoring system needs recalibration or redevelopment.
  • Cutoff score performance: A scoring system can continue to rank order the population and provide acceptable discrimant power, yet fail to produce desired performance. Shifts in scorecard performance by score range may demand adjustments to score cut-offs. Our validations include updated score performance tables for each key portfolio segment so score cut-offs can be adjusted.

After each successful validation, we will certify that the scoring system is statistically sound, that the population stability tests meet industry standards, and provide full back-up documentation, including revised score performance tables. If the scores do not adequately validate, we will provide recommendations to address any deficiencies identified.

Should your scoring system fail to validate, we are able to assist you with necessary remedial action, which can range from simple re-weighting of the existing characteristics to complete score redevelopment. In addition, if desired, we can realign scorecards to standard performance odds.

On an on-going basis, we can provide MIS support to track performance of your scoring systems.