Scots uni model can ‘accurately predict which borrowers will miss loan repayments, and when’

University of Edin Business SchoolAcademics at Edinburgh University have developed a new system for judging whether or not a loan will be repaid.

The university’s Business School says that its “intensity model” will benefit consumers with a strong credit rating.

The model, due to be unveiled at a major conference of credit experts later this month, will, according to its designers, be able to more accurately predict which borrowers will miss loan repayments, and when.

As a result, interest rates on credit cards and mortgages can be tailored to suit an individual’s exact credit history and behaviour. Those with good credit ratings will receive more tempting offers, while the cost of borrowing for others will be higher.

Jonathan Crook and Mindy Leow from the university’s business school designed the intensity model and say that it will also allow banks to better protect themselves against the £13.2 billion lost to defaults every year.

Crook said: “The ability to accurately predict consumer delinquency, default and catch-up payments over any given period in the life of a loan, and even stress-test these against different economic conditions, is a hugely powerful tool that will benefit consumers and lenders, and help to ensure our banking system is better protected in the future – which is good for the economy as a whole.

“This model really could bring about a seismic shift in how banks assess credit risk – something people with poorer credit histories should start thinking about now if they don’t want to be penalised in the future.”

Crook will present the intensity model at the Credit Scoring & Credit Control Conference to be held at the university from 26-28 August. About 400 industry experts from across Europe are expected to attend.

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