Experian-Interfax releases 2nd-generation scoring to improve quality of borrowers‘ assessment
"The release of the second-generation scoring, which is quite comparable in its predictive value with what banks in the highly-developed countries use, like in the United Kingdom, has been due to the Experian-Interfax credit bureau database‘s triple growth to 36 million [entries] and more extensive information on each borrower, that is, a larger number of events in each credit history," Experian-Interfax General Director Daniel Zelensky said.
Experian-Interfax‘s scoring is a figure varying from 311 to 1140 assigned to each borrower information on which the bureau possesses. This figure makes it possible to forecast the likelihood of a borrower‘s default on their credit liabilities within the next twelve months. The higher the scoring, the lower the default likelihood.
For instance, for the scoring rate of 1000, the ratio of "good" borrowers and "bad" ones is 32 to 1, and for 600, this ratio is 50 to 50.
Thus, a creditor bank is enabled to choose the level of risk and forecast an average level of arrears in its credit portfolio and so ward off the least reliable borrowers.
The new-generation scoring is based primarily on such indicators as the longest period of time in arrears on any loan in the past twelve months, the aggregate debt burden on all loans, the number of loan applications the borrower has submitted in the past three months, etc. This is so-called behavioral information, which helps predict the likelihood of default in the most accurate and impartial way. At the same time, the second-generation scoring does not take into account demographic information (age, education, marital status etc.) so as not to duplicate internal banking application ratings.
"The second-generation scoring includes the authenticity index. If there is information about at least one loan in the bureau‘s database, the authenticity index is 1, and in the absence of any information, like, for instance, in the case of a new borrower applying for a loan for the first time, the authenticity index is 0. This information enables a bank to use the new scoring more efficiently in its decision-making systems. The scoring also includes an explicit risk index, which shows the level of risk on each client, for which several stages are used. This can be viewed as some recommendation for a bank on how to better interpret the meaning of each particular scoring," Zelenski said.
The scoring enables a bank to automatically choose its credit strategy by forecasting a potential risk of arrears on the part of loan applicants. This rules out the manual processing of credit histories, which takes a lot of time and may lead to mistakes, and helps minimize the time for making decisions on granting loans.
Experian-Interfax was the first Russian credit bureau to start calculating its scoring in November 2006. The bureau tested its scoring with its updated database in December 2008, which showed its high reliability.
"The launch of a new-generation scoring shows our desire to retain our leadership in the area of additional services offered by credit bureaus," Zelenski said.
The bureau‘s scoring has been developed in partnership with Experian, which boasts a 20-year record of compiling scoring cards in dozens of countries. The bureau‘s scoring is studied and compiled by a special team of experts in the United Kingdom, who support scoring developers worldwide.
***The Experian-Interfax credit bureau was set up in 2004 and is among the top three Russian credit bureaus. It combines the resources of Sberbank, the largest Russian financial institution, Experian, the leading global credit bureau operator, and Interfax, Russia‘s leading news agency and the creator of SPARK, the most comprehensive Russian information system for assessing companies‘ credibility. Among the bureau‘s clients are over 200 banks and mobile operators, and its database comprises 47 million entries, including credit histories and information on loan applications. The bureau is the leader in offering credit risk evaluation services and in combating fraud.