Stability in Consumer Credit Scores: Level and Direction of FICO Score Drift as a Precursor to Mortgage Default and Prepayment

40 Pages Posted: 7 Jun 2010

See all articles by Brent C. Smith

Brent C. Smith

Virginia Commonwealth University

Date Written: June 5, 2010

Abstract

This article represents an extension of the expansive credit risk and credit migration literature, prominent in pricing risk of corporate bond and securities investment, to an analysis of the drift of consumer credit scores. A rich data set of residential mortgages is used in the development of models to predict credit score migration and then to illustrate the ability of credit score transition to serve as a precursor to potential default and prepayment. The results indicate credit scores provide signals and information to investors and servicing agents in a fashion similar to credit ratings on commercial paper.

Suggested Citation

Smith, Brent C., Stability in Consumer Credit Scores: Level and Direction of FICO Score Drift as a Precursor to Mortgage Default and Prepayment (June 5, 2010). Available at SSRN: https://ssrn.com/abstract=1621755 or http://dx.doi.org/10.2139/ssrn.1621755

Brent C. Smith (Contact Author)

Virginia Commonwealth University ( email )

1015 Floyd Avenue
Richmond, VA 23284
United States

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