What are your preliminary concerns with the changed cutoff

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Reference no: EM133377406

Question: The accounts of 10,800 credit card customers out of a sample of 135,000 that were reviewed did not perform satisfactorily. The credit scores assigned to these applicants, when originally assessed had a mean of 70 and a standard deviation of 8. The scores of the remaining customers had a mean of 85 and a standard deviation of 12. Assuming these distributions are approximately normal if the cut-off score was revised upward to 85.

(i) Complete the following table:

Creditworthiness
High	Low
Mean credit score	90	70
Standard deviation of credit score	15	10
Probability of receiving credit (%)
Probability of being denied credit (%)

What are your preliminary concerns with the changed cutoff?

QUESTION 3(b)

(ii) The original default rate on the sample of 135,000 cardholders was extremely high at approximately 8.0%. What impact would setting the cut-off at 85 have on the default rate? Show calculations.

(iii) Based on the credit evaluation process. Do you suggest the revised cutoff to 85 be adopted? Why?

Reference no: EM133377406

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