Bad rate
Bad rate is the share of loans or accounts with an outcome in a set period that meet the lender’s definition of bad. A common definition is ever reaching 90 or more days past due within 12 months on book. It can be measured by account count or by balance, and read against approval rate at a score cut-off.
Example
For illustration, suppose a lender counts an account as bad if it reaches 90 or more days past due within 12 months. If 20 of 200 accounts with an outcome meet that definition, the bad rate by count is 20 ÷ 200, or 10%.
How bad rate is calculated
Apply the lender’s chosen bad definition and performance window consistently. For an illustration, if 8 of 80 accounts in a score band with outcomes meet that definition in the window, the band’s bad rate by count is 8 ÷ 80, or 10%. By balance, if those bad accounts total 12,000 and all accounts with outcomes total 150,000, the rate is 12,000 ÷ 150,000, or 8%.
Repeat the calculation for each score band. Keep the definition, window and basis consistent across bands so the rates can be compared on the same terms.
How approval rate and bad rate move together
Moving a cut-off to approve more applicants raises the approval rate and usually raises the bad rate too, because the additional applicants are riskier. The figures depend on the score and the chosen cut-off.
For illustration, at a 70% approval rate, one score might have a 10% bad rate and a better-ranking score an 8% bad rate. The comparison holds approval rate constant, so it shows how the scores rank on bad rate at that approval level.
Questions we get asked
Is 90 days past due the only definition of a bad account?
No. The lender sets the bad definition. Ever reaching 90 or more days past due within 12 months on book is a common definition, not a universal requirement.
Can I compare bad rates across two portfolios?
Compare them with care. The figures use the same basis only if the bad definition, performance window and count-or-balance method align.
Does an account still count as bad if it later becomes current?
Under an “ever 90 or more days past due” definition, yes. Reaching that threshold during the stated window counts even if the account later becomes current.
Decisimo’s approval and bad rate calculator shows bad rate across a score’s cut-offs at any approval rate and compares what changes with a new score.
