Using a transactor/revolver scorecard to make credit and pricing decisions

• We develop an approach to estimate credit customers' profitability and default risk.
• We build a transactor/revolver scorecard and Good/Bad scorecard over the revolvers.
• We compare this approach with the standard approach in credit scoring.
• Results show that our approach is similar to the standard method in predicting default.
• Results indicate that our approach is more accurate in estimating profitability.

In consumer lending the traditional approach is to develop a credit scorecard which ranks borrowers according to their risk of defaulting. Bads have a high risk of default and Goods have a low risk. To maximise the profitability of credit card customers, a second classification between revolvers and transactors becomes important. Building a transactor/revolver scorecard together with a Good/Bad scorecard over the revolvers, gives rise to a risk decision system whose ranking of risk is comparable with the standard approach. The paper develops a profitability model of card users including the transactor/revolver score leads. This gives more accurate profitability estimates than models which ignore the transactor/revolver split.