A key question for lenders using credit scores is: How will future events impact a consumer’s credit score? An obvious concern is that the consumer was approved for credit given their score exceeded the lender cut-off at the time of evaluation, but may fall below the cut-off soon after the evaluation time. Lenders are also interested in the number of consumers who fail to obtain credit because their scores fall below a lender’s minimum, but then improve their credit scores to a level greater than the lender’s minimum either 3 or 12 months later.
This study analyzes consumer score migration. Two million consumers were randomly selected from the Experian Credit Bureau database. Their credit scores were determined every quarter during a two-year period between 2011 and 2013. Score changes were evaluated to determine the following insights:
- How stable or volatile are consumer credit scores?
- How do credit scores change over a 3-month and 12-month period?
- For consumers who fail a score cut-off, what percentage of those consumers experience score improvements such that they would pass the cut-off at some point in the future?
- Conversely, what percentage of consumers who pass a cut-off subsequently exhibit deterioration in their credit score?
- What is the true risk implication of typical score changes over a 24-month period?
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