Paper
Credit Scoring: Is it Right for Your Bank?
Guide to designing, implementing and monitoring a credit scoring model
12 pages
The paper aims:
- To demonstrate how banks can decide whether credit scoring is right for them;
- To provide a "road map" of the steps involved in designing, implementing and monitoring a credit scoring model.
The paper argues that while credit scoring can:
- Predict the likelihood or probability of a "bad" outcome as defined by the bank;
- Focus underwriting time on borderline cases, while automatically identifying very good and very bad applicants and reducing time spent reviewing them;
- Increase the profitability of small business lending by reducing time spent on collections and workout.
But cannot:
- Predict individual loan loss;
- Approve or reject a loan application;
- Increase approval rates.
The paper presents a six-step "road map" to designing, implementing and monitoring a custom credit scoring model, including:
- Presenting the concept;
- Understanding what kind of system would work in the organisation;
- Putting together a "steering committee" to discuss strategic and technical issues;
- Designing and testing the model;
- Presenting the model and providing introductory training;
- Monitoring the models and providing follow-up training.
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Published