Dynamic Valuation of Delinquent Credit-Card Accounts

This paper presents a model for the estimation of the repayment process of delinquent credit-card accounts conditional on account-specific and macroeconomic information. Based on this model we construct a dynamic collectability score (DCS). The DCS estimates the account-specific probability of collecting a given percentage of outstanding debt over a chosen time horizon. It also allows for account valuation and estimation of the future repayment frequency. The method is tested using a large set of account-level repayment data. The improvements in classification and prediction performance compared to standard bank-internal scoring methods are significant.