Consumption Credit Default Predictions:

Abstract: Consumption credit plays an increasingly important role in facilitating consumption and enables consumers to smooth consumption. Today, as much as 26% of all card transaction volume in Sweden is made with credit cards. In addition, many retailers themselves offer different types of credit alternatives. However, lending is associated with risks and it is therefore important to be able to correctly predict credit defaults. This paper investigates what factors are important to take into consideration when making credit default predictions by estimating a probit regression model using 170.000 approved consumption credits. While most traditional scoring methods mainly look at financial and demographic variables this paper shows that behavioural variables are at least as important when making default predictions.