Credit scoring or risk rating
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Credit Scoring or Risk Rating PowerPoint PPT Presentation


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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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Credit Scoring or Risk Rating

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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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