Credit Scoring 101

3/3/00

Click here to start

Table of Contents

Credit Scoring 101

Two types of credit decisions

The credit decision Scoring vs. judgmental

The credit decision Scoring vs. judgmental (cont.)

Evaluating the credit applicant

Information value

Developing population odds

Odds development

Odds development

Odds development

Interrelationships

Interrelationships

Credit score = odds (risk)

IT’S BETTER TO COUNT, THAN TO GUESS!!!

Sources of information

Performance definitions

Scoring in mortgage lending

Previous credit performance

Previous credit performance Example information

Current level of indebtedness Example information

Legal and Policy Issues

LMI Study Acceptance rates Total scorecard

LMI Study Odds vs. score Total Scorecard

LMI Study Population differences

LMI Study Maintain acceptance rate; compare bad rates

LMI Study Maintain bad rate; compare acceptance rates

HMA Study Defined high minority areas (HMA)

HMA Study Income is correlated with HMA

HMA Study Comparison of score distributions

HMA Study Comparison of odds versus score

HMA Study Population differences

HMA Study More predictive score for minorities?

Author: Fair, Isaac