To facilitate decision-making when granting loans, banks and credit organizations are increasingly using “credit scoring”. This tool makes it possible to assess the risk of non-reimbursement based on qualitative and quantitative data collected beforehand.
What is credit scoring?
Developed around twenty years ago, “credit scoring” was designed to help banks sort credit application files based on a pre-established framework. Concretely, it is a questionnaire which makes it possible to define the profile of the borrower. This form seeks to collect all the information concerning him, namely his marital status, his marital status, his professional life, his income, his assets, etc.
This information allows the bank to quickly know if its client is one of the people at risk in terms of credit. The score obtained by the borrower from the information in the questionnaire will determine whether it is possible to grant him the credit he is requesting or not.
Use of credit scoring by lending companies
The main concern of a credit organization is whether its client is able to repay their monthly payments. It is therefore necessary to avoid granting a loan to a person who risks not honoring the deadlines by establishing the profile of defaulting borrowers. To do this, it uses its own statistics (case of large banks and important financial institutions) or it purchases databases from specialized companies (case of small banks).
The bank then draws up a questionnaire containing all the information likely to determine the borrower’s profile, awarding different points for each response. Even if the basic principle is identical, each type of credit often has its own questionnaire and rating. The borrower receives a score for each of their responses. The banker simply calculates his client’s total score to determine whether he is one of the people at risk in terms of credit or not in order to consider granting or refusing the loan.
