Wednesday, March 18, 2009

credit scoring (3)

there is a general wish to try to extend credit scoring into the small business market . This is mainly on grounds of reducing the cost of processing large volumes of small borrowing requests .plenty small business credit scoring models exist,but it is questionable how successful they are.The problem is that small businesses with apparently similar characteristics in one area,for example,turnover size,have very different characteristics in other areas, ie aretail shop is different to a self employed plumber, as a doctor is different to a lawyer .
it is also the case that characteristics built into a model are most valuable when they are entirely objective . it would be thought conceptually,that for a personal borrower, the most valuable indicator of repayment would be disposable income .however,this has not proved to be the case.The data has to be captured on a simple application from and borrowers interpret the term 'disposable income' differently and subjectively .Than can also lie easily! so it is not a good objective indicator .on the other hand ,having a fixed line telephone is objective .It is factual and can be checked easily.It is evidence of relatively permanent residence as well as regular payment of a financial obligation in the form of telephone bills.Having a fixed line telephone has proved a good indicator for credit scoring models.

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