A ‘bad loan’ is a loan where the repayment time exceeds the allotted time period. Several trends regarding an applicant’s associated risk can be extracted from analysing a broad collection of 10 million historic loan records.
As shown in the diagram below, the correlation between level of education and frequency of bad loans is evident – the higher the applicant’s educational level, the less likely it is for that applicant to make a bad loan.
Another correlation is seen between an applicant’s historical income level and their repayment results. SCORE uses this correlation to predict an average rate for future applicants, partitioning them into separate categories depending on their income.