Serasa: Household income can reduce default rate by 31%

Household income can complement credit assessment and is associated with a reduction of up to 31% in the percentage of defaults, according to a study by Serasa Experian released this Tuesday (27).

The survey shows that consumers in higher-income households are less likely to delay payments, especially among the elderly, young people and low-income people.

The data shows that, among consumers aged 60 or over, the default rate falls from 9.4% to 6.5% when they live in homes with an income above five minimum wages, a reduction of approximately 31%. Among young people up to 25 years old, the index drops from 15.9% to 12.1% in the same scenario, a drop of 24%.

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According to Eduardo Mônaco, vice-president of Credit and Software Solutions at Serasa Experian, the difference between age groups is linked to the financial behavior of each group.

"Among older consumers, financial behavior tends to be more predictable and stable, which makes additional information about the household contribute even more relevant to the risk reading", Monaco informed CNN Money.

In the case of young people, the expert states that factors such as "beginning of financial life, shorter credit history and possible greater income instability still have an important influence on default behavior".

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The survey considers consumers with delays of more than 60 days after granting credit to be in default. In the general consolidated, the percentage of default increases from 11.4% to 8.1% when comparing households with lower and higher incomes, a reduction of around 29%.

Among consumers with an individual income of up to two minimum wages, the default rate drops from 13% to 10.8% when these people live in higher-income households, a reduction of approximately 17%.

Serasa Experian survey data shows that household income complements individual income when reading credit risk.

"In some groups, household information adds a more relevant layer to the assessment; in others, the gain tends to be more moderate", says Mônaco.

The company also highlights that the model can expand access to credit for consumers traditionally considered more risky. "Young people, informal workers and thin file profiles are now read more completely and accurately."

At the same time, the company highlights that more sophisticated analyzes also allow for "greater ability to identify risk in situations that might not be captured in traditional analyses."

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"The data reinforces that credit analysis can benefit from an increasingly complete view of the consumer, made up of more layers of information", stated Eduardo Mônaco.

"Estimated individual income continues to be a fundamental indicator, but, by incorporating the context of the household, it is possible to enrich this reading and make decisions even more precise and in line with financial reality", he added.

The survey also highlights regional differences. In the Southeast, the default rate falls from 12.3% to 9.9% in higher-income households. In the Northeast, the percentage drops from 14.2% to 11.5%, while in the North the rate goes from 14.7% to 11.9% in intermediate household income ranges.

The company also states that information related to the household context does not directly change the individual calculation of the credit score or the consumer's estimated income.

"The objective of the solution is to complement the risk reading through aggregated financial context variables, offering additional information to support more complete analyses", explains the vice-president of Serasa Experian.

High interest rates are one of the main causes of default in Brazil

Source: CNN