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Horizon Consumer Finance has noticed that too many loans are reaching serious delinquency (90+ days past due) before anyone intervenes. Leadership wants an early warning system that flags at-risk loans while there is still time to offer payment relief or restructuring.
"Which loans in Horizon's active portfolio are most likely to default in the next 6 months, and what signals should the collections team use to decide who to contact first?"
— Denise Kowalski, VP of Credit Risk
A straightforward analysis builds a predictive model on the full dataset and finds that credit score at origination and loan amount are the top two factors associated with default. Borrowers who had lower credit scores when they took out their loan and borrowers with larger loan balances are more likely to default.
Flag loans from borrowers who had lower credit scores at origination and carry larger balances for early outreach. Build a simple risk score and use it to rank the portfolio for the collections team.
This approach has two significant problems. First, it leans on origination features — information that was true when the loan was made but may no longer reflect the borrower's situation today.
An expert candidate recognizes that the most important question is not 'who looked risky when they got the loan?' but 'who is showing signs of financial stress right now?' They identify that current credit utilization above 0.80 — meaning a borrower is nearly maxed out on their revolving credit — and a missed payment in the last 6 months are the two strongest individual predictors of near-term default, each roughly 3–5× stronger than credit score at origination.
In the age of AI, strong analytical work rests on three things — and your report scores each one honestly so you know exactly where to grow.
Did the notebook and your recommendation solve the business problem at the right depth?
StrongYou delivered the surface story cleanly and committed to a recommendation a VP could act on — the next step up is operationalizing the deeper subgroup pattern.
Synthesized scattered metrics into a clear recommendation a VP of Credit Risk could act on.
Opened with default rate by credit-score band — the correct first segmentation, reached early.
Stopped before segmenting by current utilization and recent missed payments, where the deeper signal lives.
How well you directed the AI and judged what it handed back.
On trackYour prompts gave the AI enough context to be useful from the first message; sharpening them with a hypothesis is the next gear.
Prompts named the task and the dataset, so the AI was useful from the first message — no blank-page stall.
Prompts stayed task-shaped; leading with a hypothesis would turn the AI from a tool into a thinking partner.
The analytical skill and domain knowledge you brought in your own work.
On trackYou showed solid command of the fundamentals; the credit-risk nuance this case rewards is within reach with one more pass.
Named the ~7% default rate and leaned toward a recall-oriented framing — the right instinct for an early-warning system.
Current utilization (a live distress signal) and credit score at origination (stale) were not separated.
Tap any question to see the suggested answer.
Credit score at origination is a snapshot from when the loan was made — it doesn't reflect the borrower's current financial state. A borrower who looked prime at origination but is now near max utilization with a recent missed payment is far higher risk than a near-prime borrower paying steadily.
Current revolving utilization combined with recent missed payment recency. Utilization above 0.80 plus a missed payment in the last 6 months is the segment with the highest concentration of imminent defaults.
It means accuracy is a useless metric — predicting 'no default' for everyone scores 93%. I'd anchor on recall in the top-risk segments, frame the output as a ranked list rather than a binary classifier.
Work backwards from collections capacity. If the team can handle 200 calls a week, the cutoff is whatever score puts the top 200 borrowers in the queue. Then track whether those 200 actually reduce next-month delinquency vs. a holdout — that's your ROI signal.
They're more volatile, so the score moves week-to-week and a borrower can flip in and out of the high-risk segment. That's actually a feature for an early-warning system — but it means you need a lookback window discipline, otherwise you'll over-call borrowers who briefly spiked and recovered.
Months_since_last_missed for non-current borrowers because it captures pattern; days_past_due is a real-time state variable that's already late. I'd use both — recency for ranking, days-past-due for triage urgency within the ranked list.
If utilization > 0.80 AND any missed payment in the last 6 months, call. That single rule captures most of the high-risk segment and is explainable in one sentence — which Denise needs for compliance review anyway.
I'd anchor on outcomes: 'Of the 200 borrowers we flag, we expect roughly 30-40 to actually default in the next 6 months. That's a 5-7× lift over random. The other 160 are time spent on conversations that may or may not need to happen.' Numbers, not confidence intervals.
A holdout test where the top decile of predicted defaults actually shows 4-5× the default rate of the bottom decile six months later. Plus a fairness check — the score isn't proxying for protected attributes via correlated features like ZIP code.
Two signals: the score-to-default lift in the top decile drops below ~3×, or the feature distributions drift (utilization rates shift macro-level because of a rate cycle). Either is a flag to retrain on fresher data.
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