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What's the Score? New Risks, Credit Scores, and Revenue Opportunities in US Consumer Credit Markets

Published by: TowerGroup

Published: Mar. 5, 2007 - 15 Pages


Table of Contents



TowerGroup Take-Aways

Report Coverage

Background

Exhibit 1 The Cycle for Creating, Implementing, and Updating a Consumer Credit Score (2007)

Specify data requirements.

Collect data.

Prepare data.

Develop a model.

Validate and test the model.

Implement the credit score.

Use the model and obtain feedback.

Evaluate and update the model.

Issues for Lenders and Vendors

VantageScore

Exhibit 2 VantageScore Vendors, Characteristics, Features, Potential Customers, and Uses (2007)

Classic FICO score sold by the three bureaus.

VantageScore Modeling Analysis and Results

Consumer Score Segmentation Methodology

Different Scores for Different Markets: Comparing Credit Scores

Exhibit 3 Consumer Credit Scores and Associated Credit Risk Letter Grades (2007)

Alphabet Soup: Credit Score Letter Grades

Credit Score Scale Confusion in the Lending Markets?

Lender and Consumer-Direct Credit Score Customer Market Segments

The Lender Segment: Stagnant Growth

Exhibit 4 US Credit Report and Credit Scoring Lenders and Consumers (2005)

The Genesis of a New Market Segment.

Explosion in Market Growth.

Exhibit 5 US Consumer Credit Scoring, Reporting, and Monitoring Revenue (2001-10P)

Implications for Adoption of VantageScore

Challenges to New Credit Score Adoption

Required Operational and Technology Changes

VantageScore Potential Demand

Exhibit 6 Potential Demand for VantageScore by Loan Product Segment and Customer Segment (2007-08)

Loan Product Segment Use.

Customer and Channel Use.

Credit Score Use Across Lending Processes

Credit Bureau Scoring Expertise and the International Scoring Market

Summary





Abstract

Credit scores are key input for loan account opening and loan portfolio credit analysis in mortgage, home equity, automobile, personal, and credit card lending. But interest rates, loan payments, and delinquencies have increased, and existing credit scores may not be built for this new environment or niche customer segments. Yet the cost and time for lenders to evaluate new scores and change systems, processes, and policies is huge. This Research Note analyzes the credit score development process, assesses the features and benefits of VantageScore, compares VantageScore with other consumer credit score products, and estimates the size of the growing direct-to-consumer market.

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