How is a credit scoring model developed?

To develop a model, a company selects a sample of similar customers and analyzes it statistically to identify characteristics that relate to the likelihood of their paying back their loans. Then, each of these factors is assigned a weight based on how strong a predictor it is of who would be a good credit risk. Each creditor may use its own credit scoring model, different scoring models for different types of credit, or a generic model developed by a credit scoring company.

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