Tuesday, March 17, 2009


Actuarially based credit techniques have become increasingly popular and credit scoring systems now dominate the personal lending market .The principles underlying credit scoring are not new . insurance companies have been estimating likely death rates on an actuarial basis for centuries to establish insurance premiums. well-managed and policed credit scoring systems have been accurate mechanisms for predicting default and a highly cost effective method of taking large volumes of credit risk decisions .
but credit is not a risk-free panacea.The most mature market for credit scoring techniques is the US in 1997 to the extent that the office of the comptroller of the currency ,one of the principle US bank regulators,felt obliged to issue a circular to banks warning of the dangers inherent in relying on credit scoring systems . Eugene Ludwig ,the comptroller,said,like all tools,credit scoring models can be used well or badly. because they are so powerful,their potential for good or ill is magnified.

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