DefaultRiskIndex.com Updated to Include Latest Loan Origination Dataset, Showing Increased Risk in Bankcard Loans and Decreased Risk in Mortgages Loans
STAMFORD, Conn., November 20, 2018 – VantageScore Solutions, LLC, developer of the VantageScore® credit scoring models, today announced an update to its Default Risk Index™ (DRI) based on new loan origination data from the second quarter of 2018. The DRI identifies the appetite for risk from lenders by comparing the volume and weighted-average risk profile of quarterly originations within each major loan category. The most recent update reveals that new bankcards issued during the second quarter were 20.72 percent riskier than those issued in the prior quarter, while new mortgages made during the second quarter were 15.13 percent less risky than the prior quarter.
The following table summarizes changes in index values between the second quarter of 2018, the first quarter of 2018, and the second quarter of 2017.
TOTAL ORIGINATIONS VS. LAST QUARTER
TOTAL ORIGINATIONS VS. SAME QUARTER LAST YEAR
PROBABILITY OF DEFAULT (WEIGHTED)
DEFAULT RISK INDEX
DRI VS. LAST QUARTER
DRI VS. SAME QUARTER LAST YEAR
The Default Risk Index translates each new loan into a risk estimate using the most recent odds charts available. This quarter reflects the first update to the odds charts since July 2016.
Through the lens of newly-updated odds charts, this most recent quarter saw a significant increase in the risk profile of new credit cards as compared to a significant decrease in the riskiness of new mortgages from the previous quarter.
Originations in all loan categories remained at similar levels to the same quarter last year; relative to last quarter, however, mortgage originations increased 25.76 percent.
Each risk profile for the DRI is indexed to the beginning of the series, where the third quarter of 2013 equals 100. DRI profiles that are close to 100 show an equivalent risk activity to the 2013 benchmark; whereas, DRI profiles that fall further from 100 distinguish risk activity that is either higher or lower than the benchmark (depending on the results).
The DRI was built to use the latest available loan origination data based on odds charts which are published online annually by VantageScore. These charts are statistically representative of a national sample over a two-year performance window. The DRI uses the versions specific to new loan originations (as opposed to account management) for each industry type (i.e., bankcard, mortgage, auto, and student loans).
About the Default Risk Index™
The VantageScore Default Risk Index™ (DRI) and its website, DefaultRiskIndex.com, permit users to monitor the shifting quarterly risk profiles 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 provided to VantageScore users that match values on the 300-850 VantageScore scale range with their corresponding probability of default (PD) values.
The Default Risk Index™ is a measure of relative changes in risk level, benchmarked against the third quarter of 2013, the first period for which data were compiled. Interactive tools at DefaultRiskIndex.com allow users to view trends for each loan category and freely download the data behind the charts.
The VantageScore Default Risk Index™ is provided as a free resource to institutional and individual investors, professionals in the securitization field, academics, and all others interested in systemic lending risk. It is updated quarterly, with data reflecting loans issued in the preceding quarter.
VantageScore Solutions and TransUnion developed the DRI to highlight limitations in the traditional ways credit scores are used to evaluate risk for categories or securitized pools of consumer loans. Today’s common practices—using “weighted average” or “distribution by score band” to summarize risk— are mathematically flawed. Reliance on those metrics can result in a miscalculation regarding the true credit quality of a loan pool as well as obscuring meaningful trends and leading a well-intentioned analyst to the wrong conclusions.
About VantageScore Solutions
Credit scores can impact many aspects of your life, everything from whether you are able to get a loan and how much interest you will have to pay to whether you are able to rent an apartment. At VantageScore, we understand the impact credit scores have and we take that responsibility seriously.
VantageScore Solutions, LLC (www.VantageScore.com) is the independently managed company that owns the intellectual property rights to the VantageScore credit scoring models and is the leader in scoring innovation. The recently introduced VantageScore 4.0 model scores approximately 30 million consumers who typically are not scored by conventional models – without sacrificing predictiveness.
VantageScore credit scores are used by lenders, landlords, utility companies, telecom companies, and many others to determine creditworthiness. A recent study found that nearly 10.5 billion VantageScore credit scores were used by over 2,800 unique users from July 2017 to June 2018. By using the VantageScore model, these enterprises have access to many more consumers, and in turn, consumers have greater access to mainstream credit.
While there are many credit scoring models in the industry, the “win-win” for VantageScore is its innovative, highly predictive, patent-protected, tri-bureau scoring methodology that provides lenders and consumers with more consistent and reliable credit scores across all three national credit reporting companies.