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Credit Scoring or Risk Rating. Developed to assist lending institutions in credit management and risk assessment. A borrower’s risk lies in their overall repayment ability as it pertains to the probability of default or late payments. Advantages. Improved accuracy of loan classification

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Presentation Transcript
credit scoring or risk rating
Credit Scoring or Risk Rating
  • Developed to assist lending institutions in credit management and risk assessment.
  • A borrower’s risk lies in their overall repayment ability as it pertains to the probability of default or late payments.
advantages
Advantages
  • Improved accuracy of loan classification
  • More timely decisions can be made.
  • Bases for responding to competitive pressures via a risk rating system that is linked to a loan pricing system.
  • Opportunity to examine risk on terms consistent with the lenders profitability and growth goals.
  • Provides information to meet the needs of examines and regulators
components in developing a credit scoring system
Components in Developing a Credit Scoring System
  • Personnel expertise
  • Time and resources available
  • Ability to automate
  • Amount and quality of information needed
  • Risk classification criteria
  • Weighting and scoring measures
  • Validation and documentation
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