DM: RE: RE: Telecom Credit Score

[Tom Dinsmore]

The customer's outstanding balance would have no impact on 
predictions about
the incidence of churn.

Jerry, have you ruled out cohort effects in your model? A cohort effect is a common bias when we attempt to model the impact of customer tenure. If the mix of customers has changed over time, such that "early adopters" have an overall higher risk profile than later adopters, your "tenure" field will carry latent information value about the customer's risk.

Adverse selection is another possible explanation. Over time, most cohorts experience declining marginal risk because the bad customers default early and the good customers remain in the cohort. However, a serious attrition problem may cause the "good" customers to close their accounts faster than the "bad" customers, so the overall risk profile of the cohort increases.

If the attrition rate among good customers exceeds the attrition rate among "bad" customers in a given period, the marginal default rate in subsequent periods may increase because the number of defaults will be spread across a smaller base of remaining customers.

-- TD

> -----Original Message-----
> From: DLaney [SMTP:DLaney@PrismSolutions.com]
> Sent: Saturday, December 05, 1998 9:01 AM
> To:   Musial Jerry; datamine-l@nautilus-sys.com
> Cc:   SBarnes; Tcasey
> Subject:      DM: RE: Telecom Credit Score
> 
> Jerry,
> 
> From my limited experience with such data, your initial results 
>might be
> skewed by customers who have churned and have left outstanding 
>balances. I
> have copied a couple of our telco DW experts to see what their 
>experiences
> in this area might be. If you have difficulty identifying churned
> customers
> from your sample-set (we know how difficult this can be in telco), 
>we can
> help you with this as well.
> 
> Cheers,
> Doug Laney
> Solutions Business Development Manager, Prism Solutions
> 8750 W. Bryn Mawr, Chicago, IL 60631
> office: (773) 399 9175 --- fax: (773) 399 9435
> dlaney@prismsolutions.com --- www.prismsolutions.com
> 
> 
> -----Original Message-----
> From: Musial Jerry [mailto:Jerry_Musial@bscc.bls.com]
> Sent: Thursday, November 05, 1998 10:51 am
> To: datamine-l@nautilus-sys.com
> Subject: DM: Credit Score
> 
> 
> Hi,
>       I am looking for help/resources related to credit scoring of
> 'existing' customers.  In particular, I am interested in how 
>researchers
> deal with tenure as it relates to whether or not one of our 
>customers will
> continue to pay their bills in a timely manner.  We intuitively 
>feel that
> the longer a customer has been with us (and paying us) the better 
>credit
> risk.  However, my initial results show that the longer a person 
>has been
> with us, the odds of his not paying increase.  Anyone have any 
>ideas?
> 
> Thanks
> Jerry Musial
> BellSouth Cellular