Credit Scoring and Loan Default

29 Pages Posted: 3 Jun 2015

See all articles by Rajdeep Sengupta

Rajdeep Sengupta

Federal Reserve Bank of Kansas City

Geetesh Bhardwaj

SummerHaven Investment Management

Date Written: June 2015


A metric of credit score performance is developed to study the usage and performance of credit scoring in the loan origination process. We examine the performance of origination FICO scores as measures of ex ante borrower creditworthiness using loan‐level data on ex post performance of subprime mortgages. Parametric and nonparametric estimates of credit score performance reveal different trends, especially on originations with low credit scores. The data suggest a trend of increased emphasis on higher credit scores accompanying a trend of increased riskiness in other origination attributes. Over time, this increased emphasis on credit scoring coincided with deterioration in FICO performance largely because of the fact that higher credit score originations of later cohorts were more likely to have riskier attributes. However, controlling for other attributes on originations and changes in economic conditions, we find that, as measures of borrower ranking, FICO performance on subprime loans over the years remains fairly stable.

Suggested Citation

Sengupta, Rajdeep and Bhardwaj, Geetesh, Credit Scoring and Loan Default (June 2015). International Review of Finance, Vol. 15, Issue 2, pp. 139-167, 2015, Available at SSRN: or

Rajdeep Sengupta (Contact Author)

Federal Reserve Bank of Kansas City ( email )

1 Memorial Dr.
Kansas City, MO 64198
United States

Geetesh Bhardwaj

SummerHaven Investment Management ( email )

Soundview Plaza,
1266 East Main Street
Stamford, CT 06902
United States

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