Question
The accounts of 4,500 credit card customers out of a sample of 40,000 that were reviewed did not perform satisfactorily. The credit scores assigned to
The accounts of 4,500 credit card customers out of a sample of 40,000 that were reviewed did not perform satisfactorily. The credit scores assigned to these applicants when originally assessed had a mean of 70 and standard deviation of 8. The scores of the remaining customers had a mean of 87 and a standard deviation of 12. Assuming these distributions are approximately normal, if the cut-off score was revised upward to 82.
- Complete the following table:
Creditworthiness | ||
High | Low | |
Mean credit score | 87 | 70 |
Standard deviation of credit score | 12 | 8 |
Probability of receiving credit (%) | ||
Probability of being denied credit (%) |
(ii) The original default rate on the sample of 40,000 card holders was extremely high. What impact would be setting the cut-off at 82 have on the default rate? Show calculations. Is this adjustment reasonable? Discuss.
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