The popularity of lending is pushing banks and other credit organizations to expend their credit offers. Lower interest rates, simplicity of applying for a loan, and the speed of application processing are some of the factors for banks to consider as they struggle for clients. In the current highly competitive environment, most organizations are using various automated tools and mechanisms for their lending decisions, and these organizations thus have an undeniable advantage over their rivals. One such automation mechanism is engine and scorecard based credit scoring.
What is a credit score?
1. A credit score is a number. This number shows the credit worthiness of the potential borrower and is calculated by a formula that evaluates different factors:
- the quality cymbalta cost of the potential borrower for paying the bills on time and in full;
- the debt of the client carried;
- various demographic and micro-economic factors;
- potentially many other components and parameters.
The concept is quite simple: The higher the numeric score, the greater the likelihood of on-time payment and profitability with a potential borrower. The credit score is an important indicator of a client’s willingness and ability to repay a loan. Lenders may use the credit score to determine whether the client is qualified for a loan or not based on the lenders appetite for risk (or lack thereof), what type of interest rate the client should be charged (typically based on the level of risk), and other factors in making a decision about granting the loan. In other words, the credit score is used to forecast the customer behavior in terms of repaying the loan. Using the information the organization has on hand about a customers’ behavior today, a lender may evaluate the probability of the customers’behavior in the future. 2. A Credit score is based on a mathematical algorithm and thus demonstrates consistent results. The scorecard treats identical applications identically. For two people with identical characteristics a credit scoring system will generate the same score. The basic principle is to assign a score to an individual based on the information that is known about them at the time of application. Various factors affect credit scores, some of them are the following:
- Demographics (age, time of residence, employment time etc.),
- Existing relationship (time at bank, number of products, payment performance, previous claims, such as bankruptcies, charge-offs and collections),
- Credit bureau data (inquiries, trades, delinquency, public records etc.),
- Asset data,
The higher the score is, the more likely the client is to repay fully and consistently, and more favorable terms can be offered by the lender. Therefore, a higher credit score should help a potential borrower receive better terms and conditions on their loan, while at the same time, banks can adjust for customers with lower scores by offering terms and conditions which will offer higher profitability in the face of higher risk.
Types of credit score
Credit scores can be calculated during any stage of the credit lifecycle. Some examples of scores would be:
- Application score is based on a client’s application information and influences the lender’s decision for approval or rejection of the loan request.
- Behavioral score is based on known information about a borrower’s historical behave or in different aspects of the loan lifecycle.
- Collection score (such as collectability and locator scores) is based on the likelihood to pay a fixed amount at a given point in time based on various criteria and the borrowers’ previous performance (overall and in similar circumstances).
- Fraud score is based on validations of applicant information and applicant behavior and helps the lender to be alerted of potentially fraudulent transactions or to track fraudulent activities in the loan portfolio.
The tools which lenders use for making lending decisions are not universal. Each lender has its own image of a “perfect customer”. Lenders zoloft will independently develop various models for assessing the credit worthiness of the borrower based on different biases and aspects of the lender’s loan portfolio. With the help of self-developed scoring models, banks have the ability to improve the quality of their portfolio fundamentally and to create a unique lending experience for their customers. While some credit organizations choose to order scorecards from a 3rdparty, scoring models developed internally can better reflect their unique knowledge of the business realities and thus result in scoring models which more precisely reflect the requirements each lender has for it’s individual borrowers as well as its overall loan portfolio. This means the potential possibility for more accurate monitoring and management of credit risks and, consequently a higher yield from the total loan portfolio of the bank.
Benefits of acne accutane credit scoring
Automated credit scoring gives lenders multiple advantages. Here are just some of them:
- Saves time (lenders reduce the time for making a credit decision);
- Increases the profitability of every-day operational decisions (lenders increase number of reviewed applications without loss of quality);
- Decreases the lender’s loan risks;
- Consistency in lending decisions and management.
- Gets the most objective assessment based on analytically proven regularities rather than the subjective opinion of a bank employee.