The Santa Challenge 5: Learn and Improve!
FICO has helped Santa deliver this Christmas - the next step in decision management is to see how he could do better next year
Santa Claus faced a challenge in this pandemic year. Kids worldwide can’t sit on Santa’s lap. Elves are in lockdown and he needed to find new toy sources. Plus with Dancer and Prancer self-isolating, he needed a new way to make his worldwide rounds. This calls for advanced AI and decision management technology – enter FICO!
Santa, Mrs. Claus and the elves are all celebrating a successful delivery. But just a few weeks ago, things didn’t look so bright. The global pandemic created new challenges for organizations of all sizes, and Christmas Inc. was no exception.
For sure, Santa is very experienced and has faced pandemics before. But the growing world population makes his job a little bit harder every year. Just to put things in perspective, Santa had to deliver presents to four times more children this year than during the Spanish Flu pandemic 100 years ago!
Santa turned to FICO for help, and we worked together to get missing data on millions of children, analyze that data to find out individual preferences and behaviors, determine and produce the best matching gifts for all the children and deliver every one of those presents in an epic midnight run with fewer reindeer than usual.
Because Santa now has all his data, machine learning models and strategies in the FICO Platform, results are instantly available and can be sliced and diced to help analyze this year’s performance. And also, to get ideas on how to make next year’s Christmas even better!
Lightning Can't Stop Him
First, let’s take a look into that scary lightning strike that struck the sleigh! Thankfully it was not too difficult to repair and the FICO Platform calculated an updated route in no time.
Looking at the performance of the weather forecast models, responsible for predicting where storms are likely to hit on Christmas night, we can clearly see their predictive power has decreased over the last decade, and in particular over the last couple of years.
This is likely a consequence of Climate Change, which is making storms more frequent and more extreme. For next year’s Christmas, the data science elves will use FICO Analytics Workbench to develop a new model incorporating the latest weather data, reducing the chances of a similar incident in the future.
Continuous Improvements in Gift Matching
In terms of assigning gifts to children, it seems the new optimized strategy did a great job. The data is still coming in, but so far, we are tracking well for a 3.5% increase in overall child satisfaction compared with last year!
However, in the pre-teen cohort I’m afraid the matching performance continues its downward trend this year. The issue seems to be due to the so-called “additional attributes”: the present is the right one, but since many of the kids in this age group are not specifying what exact model or color they want, Santa is missing the mark.
The new alternative data sources we used this year might be of help here. Knowing the most popular set of additional attributes from retailers in different regions should help us make better predictions on the details of what the children wanted but failed to mention in their letters.
Using the simulation capabilities of the FICO platform, we can check how the new additional attributes predictions would have performed if they had been introduced years ago, and the impact on other indicators. For instance, we want to make sure we don’t dramatically increase costs by always gravitating towards the most expensive model.
The simulation seems to indicate this change will have a good net impact, but it is still wise to proceed with caution. Given the risks of introducing changes in this area, we can define the new additional attributes strategy as a challenger to the logic currently in place. In other words, by randomly diverting a certain percentage of children in the pre-teen cohort to use the new strategy, its effectiveness can be better assessed. And if we are pleased with next year’s results, all children can go through this strategy in the future.
Santa Challenge 5 – solved!
See all the ways we helped Santa at www.fico.com/santachallenge
Find out how you can solve YOUR challenges using the FICO Platform
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FICO® Score High Achievers: Is Age the Only Factor?
<p>FICO’s latest research on <a href="http://www.fico.com/en/blogs/risk-compliance/us-credit-quality-rising-the-beat-goes-on/" target="_blank">national FICO® Score distribution</a> shows that US credit quality continues to trend upwards, with an increasing number of consumers scoring in the highest scores ranges. Given that, we decided it was time to refresh our study on “<a href="http://www.fico.com/en/blogs/risk-compliance/infographic-what-does-a-high-credit-scorer-look-like/" target="_blank">FICO® Score high achievers</a>,” where we examine the credit behavioural profiles of consumers with higher credit scores.</p> <p>As expected, our latest study showed that older people generally have higher scores, as has been the case in our <a href="http://www.fico.com/en/blogs/risk-compliance/age-before-beauty-credit-worthiness-before-youth/" target="_blank">past research</a>. This is largely because they have trade lines that have been open longer, which leads to higher scores (assuming the trade lines are in good standing and all other things equal). The most credit savvy among you will remember that length of credit history accounts for roughly 15% of the overall <a href="http://www.myfico.com/CreditEducation/WhatsInYourScore.aspx" target="_blank">FICO® Score calculation</a>.</p> <p>But for younger consumers, it isn’t too helpful to say, “just wait until you are 50 years old, and that will fix things!” Thus, I decided to dive deeper with our analysis, including looking at the credit behavioural characteristics of younger consumers with high FICO® Scores.</p> <p>In this analysis, I looked at credit characteristics for the two highest score bands, 750-799 and 800-850, which have about 16% and 23% of the population, respectively. I further broke this down by looking at the characteristics of the youngest 15% in each group, which occurs at age 29 for the 750-799 group and 43 for the 800-850. We used FICO<strong>®</strong> Score 9 for our analysis, and examined typical variables of the categories that go into the make-up of the score.</p> <p><a href="http://www.fico.com/en/blogs/wp-content/uploads/2016/10/FICO-Score-High-Achiever-table.png"><img class="alignnone size-full wp-image-29367" src="http://www.fico.com/en/blogs/wp-content/uploads/2016/10/FICO-Score-High-Achiever-table.png" alt="fico-score-high-achiever-table" width="715" height="747" /></a></p> <p>Since there’s a lot to dissect in this chart, I’ll highlight a few findings that struck me: <ul> <li><strong>Credit history.</strong> Higher scores are undoubtedly associated with a longer time on file. What’s striking is the higher average time on file for the 800+ group, both overall and for revolving accounts (the most common trade line). Clearly, it helps to start credit use early in life – but that’s not the sole determining factor for high scoring. The younger cohorts in both the 800+ and 750-799 groups have time on file medians significantly less than their older counterparts.</li> <li><strong>New credit.</strong> High credit scorers do, in fact, pursue new credit. We see little variation in months since last trade line opening and last inquiry among all groups observed.</li> <li><strong>Pay on time.</strong> As you might expect, the further in the past the delinquency, the higher the score – and that’s <u>if</u> a delinquency ever happened. 95% of the 800+ people and 72% of the 750-799 group have never been delinquent, which is a striking contrast to the 57% for the total population. The percentages for the younger groups are even higher, especially so for the 750-799ers. Collection items are also scarce for these high scorers. While 23% of the national population have collection items greater than $99, the figures are only 0.5% for the 800+ group and 3% for the 750-799 group. It is clear that, in conjunction with starting a credit file early, paying on time is a key trait of the FICO® Score high achiever.</li> <li><strong>Balance and utilization.</strong> Finally, we look at how credit is being used, focusing on revolving product use. (Since most people only have one mortgage or one auto loan, variation in instalment product figures is minimal and driven by payment history, which is near perfect for high scorers, as we’ve seen.) FICO® Score high achievers tend to have more open revolving accounts. While the % active trades and utilization are generally lower, by no means do high scorers avoid the use of credit products. What drives the difference here is the amount of <u>available</u> revolving credit utilized. The 800+ group is roughly 1/4 of the national median, both in total and on their highest utilized card; they also have lower balances and more cards<em>. </em>The 750-799 group is more active and higher utilized, but still only at 2/3 of the national figures. The young 750-799 group compensate with lower revolving balances and, as a result, lower utilization, which is in line with what we see for the 800+ group.</li> <li><strong>Benchmarks.</strong> I’d like to point out that while this study provides good benchmarks of the typical credit traits of the FICO® Score high achiever, individual credit profiles will vary widely. And keep in mind that when we sort groups of consumers as a whole by different behaviours, some results may look superficially odd. For example, the 800+ band has a longer median average open account time (128 months) than average revolving months on file (140 months).</li> </ul> So, what do we conclude? A huge takeaway is that high scorers don’t have too much in the way of serious delinquencies and negative public record data.</p> <p>In most respects, the young 800+ people are like their peer group. They really only differ markedly in their shorter credit history and higher non-mortgage balance, both of which are a function of life stage. Our results show that you don’t have to be a credit product hermit; these high scorers have more credit cards. The takeaway is to start credit activity early and maintain well-managed and moderate usage.</p> <p>In many ways, the young 750-799 people are more interesting because their age profile is much younger. Their credit characteristics differ more from their peer group, particularly in terms of length of credit history. They compensate by having almost pristine credit records and lower balances.</p> <p>Ultimately, 39% of US consumers are FICO® Score high achievers, which they accomplish by following common-sense credit practices. It ain’t rocket science!</p>
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