This white paper provides an overview of the VantageScore Default Risk Index (DRI), an interactive webside developed in partnership with TransUnion, which tracks changing levels of default risk in four major consumer-lending categories.
The DRI website, DefaultRiskIndex.com, lets users monitor the shifting quarterly risk profile of loan originations in the mortgage, credit card, auto, and student loan categories. The DRI is derived using credit file data from TransUnion and VantageScore odds charts—tables furnished to VantageScore users that match values on the 300-850 VantageScore scale range with their corresponding probability of default (PD) values.
The DRI was developed by VantageScore and TransUnion to highlight the limitations of the traditional use of credit scores in evaluating risk for categories or pools or loans. As the structured finance industry incorporates the asset-level disclosures required by SEC Regulation AB II, the DRI highlights an opportunity to gain an analytical advantage using credit scores.
Today’s common practices—using “weighted average” or “distribution by score band” as summaries of risk— are mathematically flawed. Reliance on these metrics can miss the true credit quality of a loan pool, obscure meaningful trends, and lead a well-intentioned analyst to the wrong conclusions.
This paper explains why traditional metrics are flawed, and how the DRI points to an approach that provides a truer picture of portfolio risk.