4m Credit Scores When a customer asks to borrow money, many banks check their credit score before giving them a loan. The credit score estimates the risk associated with making a loan to the customer....

4m Credit Scores

When a customer asks to borrow money, many banks check their credit score before giving them a loan. The credit score estimates the risk associated with making a loan to the customer. Credit scores are based on how well an individual has handled past debts. Customers that have made regular payments on time on several loans get a high score, whereas those who have been late and perhaps defaulted on a loan have lower scores.


The data in this question give the credit score for 963 individuals who recently obtained small business loans from a lender. The average score is 580. The lender is considering raising its standards for getting a loan to reduce its exposure to losses. An executive proposed raising the minimum credit score for these loans to 550, saying that such a score would not lose too much business as it was ‘below average’.

Motivation

(a) The average of these credit scores is 580. Why would it be useful for managers of the lender to examine other attributes of the data before deciding on new standards?

Method

(b) What other attributes of the data should the managers examine?

Mechanics

(c) Present a display that captures the relevant attributes of these credit scores. Include relevant summary statistics.

Message

(d) What do you think of the recommended new credit limit?