Question: Yorktown Savings Bank in reviewing its credit card customers finds
Yorktown Savings Bank, in reviewing its credit card customers, finds that of those customers who scored 40 points or less on its credit-scoring system, 30 percent (or a total of 7,665 credit customers) turned out to be delinquent credits, resulting in total loss. This group of bad credit card loans averaged $6,200 in size per customer account. Examining its successful credit accounts Yorktown finds that 12 percent of its good customers (or a total of 3,066 customers) scored 40 points or less on the bank’s scoring system. These low-scoring but good accounts generated about $1,000 in revenues each. If Yorktown’s credit card division follows the decision rule of granting credit cards only to those customers scoring more than 40 points and future credit accounts generate about the same average revenues and losses, about how much can the bank expect to save in net losses?
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