Senior Honors Projects, 2010-current

Preferred Name - First Author

Fogg, Kathleen

Date of Award

Spring 2016

Document Type

Dissertation/Thesis

Degree Name

Bachelor of Business Administration (BBA)

Department

Department of Finance and Business Law

Advisor(s)

Kayti Schumann

Abstract

There are many underbanked Americans who struggle to obtain financing due to poor credit or no credit. Credit score is the primary measure used in the United States to determine credit worthiness, however there are many problems with credit score. Credit score may not be an accurate representation of risk and it can be manipulated. In addition, many Americans do not have a credit score. Some companies are beginning to use alternative measures to underwrite, but there are no published studies on using this method for subprime auto loans. This paper examines the potential alternative measures that Auto Capital, a finance company that extends credit for the purpose of financing automobiles for subprime consumers, could use in addition to credit score in its underwriting model. Several alternative measures were tested, selected based on non-standard underwriting models in use and on the data available. These alternative measures are time-at-job, time-at-residence, down payment, payment ratio, and disposable income. Of these measures, only down payment and payment ratio were the significant predictors of loan repayment for the subprime population.

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