A new business model has been developed to allow banks to more accurately predict when and where their customers are most likely to fall behind on payments…

The “intensity model” was developed at the University of Edinburgh Business School and would see credit card and mortgage interest rates tailored to an individual’s credit history.

Banks adopting the model would also be able to better protect themselves against the £13.2bn of loans written off every year.

Borrowers with poorer credit scores would pay higher interest rates while those with a strong credit history would benefit from lower rates offered by banks competing for their business.

Professor Jonathan Crook, Professor of Business Economics and Director of the Credit Research Centre, said: “The intensity model is designed to take an already effective system used by banks and create the next generation of risk modelling.”

“The ability to accurately predict consumer delinquency, default and catch up payments over any given period in the life of a loan, and even stress-test these against different economic conditions, is a hugely powerful tool that will benefit consumers and lenders, and help to ensure our banking system is better protected in the future."

Professor Jonathan Crook will be presenting the model at the Credit Scoring and Credit Control conference held at the University of Edinburgh from 26th to 28th August.

He added: “This model really could bring about a seismic shift in how banks assess credit risk - something people with poorer credit histories should start thinking about now if they don’t want to be penalised when borrowing in the near future.”