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By FICO - Homecourt Disadvantage: Truncation Bias and the Art of Comparing Consumer Credit Scoring Models
Generally available consumer credit scoring models can provide great value to lenders in evaluating the risk of loan applicants. These models are designed to distill the predictive power of a large number of consumer factors into a single, easily understood score. While the credit scoring models work well in estimating default likelihood over time, all models eventually may need to be evaluated to determine if an update to the existing model is needed, or whether the existing model should be replaced by a new credit score model. However, these evaluations can be challenging. This FICO white paper will cover credit scoring fundamentals and provide a deep dive on the cause and effect of truncation bias and ways to mitigate.