Wednesday, March 18, 2009

credit scoring (4)

credit scoring is cost effective because it establishes a system to take repetitive credit decisions.but systems create systemic risk.If the system or the assumptions on which it is based malfunction ,wrong decisions are magnified across the whole of the borrower population being managed with potentially horrendous consequences.subjective judgment is still needed in establishing the parameters of the system and deciding when they need to be revised .circumstances in the world change and so does borrower behaviour. credit scoring does have abase in subjective judgment . Decisions are merely taken in another place from individual assessment of borrowers and involve different risks .

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