Predicting Credit Card Delinquency

credit card
In his thesis «Predicting Credit Card Delinquency: A Fundamental Model of Cardholder Financial Behavior» PhD Candidate Håvard Huse proposes a model of credit card customer delinquency based on theoretical advancements in financial decision-making.
PhD Defense

5 November 2019 15:57

Predicting Credit Card Delinquency

On Thursday 14 November 2019 Håvard Huse will hold a trial lecture on a prescribed topic and defend his thesis for the PhD degree at NHH.

Håvard Huse

Prescribed topic for the trial lecture:

Implementing models for credit card delinquency

  1. How can firms implement these models? 
  2. How to organize these analyses/models in a credit card company?
  3. What are the possible obstacles? What kind of staff do you need? How to organize efforts/organizational issues?

Trial lecture:

10:15 in Jebsen Centre, NHH

Title of the thesis:

Predicting Credit Card Delinquency: A Fundamental Model of Cardholder Financial Behavior


This thesis proposes a model of credit card customer delinquency based on theoretical advancements in financial decision-making. As follows, this thesis has two main research purposes.

First, credit card delinquency is modeled explicitly, incorporating mechanisms from mental accounting and financial decision-making. This allows for more realistic modeling of cardholder behavior, while simultaneously inspecting the validity of these theoretical concepts.

Second, the modeling specification advances previous research in the behavior scoring literature. Accounting for individual-level heterogeneity, dynamic effects are assigned as individual lag weights using a segmented approach. Hence, potentially different behavioral patterns between non-delinquent and eventual delinquent cardholders are modeled directly.

Using a comprehensive dataset combining credit and debit transactions of cardholders between June 2008 and June 2011 from a Norwegian bank, support is found for the following three hypotheses related to mental accounting and present bias. First, increased payment decoupling leads to a higher likelihood of delinquency, when continued borrowing is promoted by reduced salience of past expenses. Second, the results show that behavior consistent with persistence of decision-making ineptitude also increases the likelihood of delinquency. Some cardholders habitually spend excessively, refusing to accommodate consumption to a financially reasonable level. Third, a lower concern for future consequences also increases the likelihood of delinquency. Present-biased individuals tend to discount future credit card repayments at a higher rate and consistently spend at perilously high rates.

Further, the results reveal how the structure of dynamic effects improves prediction of delinquency. Capturing the heterogeneous effects of previous financial status leads to a more precise understanding of cardholder behavior. The proposed model has greater predictive performance than machine learning algorithms that are frequently applied to credit scoring data.


12:15 in Jebsen Centre, NHH

Members of the evaluation committee:

Professor Jonas Andersson (leader of the committee), Department of Business and Management Science, NHH

Professor P.S.H. Leeflang, Universitety of Groningen

Førsteamanuensis Aurélie Lemmens, Tilburg School of Economics and Management


Professor Sven Arne Haugland (main supervisor), Department of Strategy and Management, NHH Associate

Professor Auke Hunneman, BI Norwegian Business School