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FRM Part II · FRM Exam Part II · Credit Scoring and Retail Credit Risk Management

A bank wants to decide which delinquent credit card customers should be contacted first by the collections team. Which approach best aligns with sound retail account management?

The bank should use a collections score ranking delinquent accounts by cure likelihood and expected recovery, then tailor treatment. This allocates limited collector effort efficiently, whereas origination scores are outdated and uniform or date-based ordering ignores differences in risk.

  1. AUse a collections score that ranks accounts by likelihood of cure and expected recovery, and tailor treatment strategy accordinglyCorrect
  2. BContact all delinquent accounts in order of account opening date
  3. CApply the same strategy to every account to ensure consistent treatment
  4. DUse only the origination application score to prioritize contacts

Explanation

Collections scoring uses current behavior and delinquency data to estimate cure and recovery, allowing the lender to allocate scarce resources and tailor contact intensity. The origination score is stale, and uniform or date-based treatment ignores risk differences.

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