Abstract
Recent studies in marketing have consistently shown that all customers are not equally profitable. In the credit card business, all customers are not equally risky. When a customer misses one payment on a credit card bill, a signal is sent to the credit card company. It is important for the card issuer to interpret the signal and to identify whether the customer is a low-risk one, who will eventually pay back the debt and contribute to the card issuer's profits by paying interest on the overdue balance, or a high-risk one, who will not pay back the debt. The issuer can then customize its policies to deal with these different consumer types. This article develops a dynamic model for debt repayment behavior of new customers in the credit card market that makes it possible to differentiate between low-risk, delinquent customers and high-risk customers. The authors apply the model to a data set of new consumers' monthly spending and repayment records.
Keywords
Get full access to this article
View all access options for this article.
References
Supplementary Material
Please find the following supplemental material available below.
For Open Access articles published under a Creative Commons License, all supplemental material carries the same license as the article it is associated with.
For non-Open Access articles published, all supplemental material carries a non-exclusive license, and permission requests for re-use of supplemental material or any part of supplemental material shall be sent directly to the copyright owner as specified in the copyright notice associated with the article.
