Estimation of the Probability of Credit Card Charge-Off in the Presence of Competing Risks

The primary reasons for credit card charge-off are delinquency and bankruptcy. In this paper, we develop a dependent competing risks model to investigate the determinants of time to delinquency and time to bankruptcy jointly, and to investigate their interdependence. Our results show that delinquency and bankruptcy are sensitive to unemployment rate and some account-specific measures. In addition, delinquency is highly sensitive to recent legislative reform (Credit Card Act of 2009). We find a negative interdependence between the delinquency and bankruptcy hazards through a significant negative correlation between the unobserved heterogeneities. We show that the independence assumption of competing risks would produce biased estimates and lower the predictive accuracy