The credit score can be used for credit ratings as delinquent or in default, good or bad, desirable or not, according to the score obtained by each credit. This classification, in turn, can guide the analyst’s decision whether to grant or not the credit requested.
Thus, the essential idea of credit scoring models is to identify certain key factors that influence the timely payment or delinquency, allowing classification of them into distinct groups and, as a consequence, the decision on the acceptance or rejection.
The differentiation of this model in relation to subjective models of credit analysis is partly because of the selection of the key factors and their respective weights accomplished through statistical processes. Furthermore, the scores generated for each customer from the equation of the credit scoring model provides quantitative indicators of the chances of default on Fast Cash Loans Online.
The credit scoring models can be applied to both the credit analysis of individuals and companies. When applied to individuals, they use registration information and socio-economic conditions of the customers. Blatt (1999) points out that the basic methodology for the development of a credit scoring model does not differ between applications for individual or legal entities, the following steps must be completed to its development.
Planning and definitions: markets and credit products for which the system will be developed, purposes of use, types of clients, default concept to be adopted and forecast horizon model.
Identification of potential variables: characterization of the applicant, characterization of the operation, selection of significant variables for the model and analysis of constraints to be considered in relation to the variables. Sample design and data collection: selection and sizing of the sample, data collection and assembly of the database. Determination of formula scoring using statistical techniques such as discriminant analysis or logistic regression.
Determination of the cutoff point from which the client is classified as compliant or good paying, in other words, is the point from which the financial institution may approve the release of credit. The credit scoring models themselves are tools that support decision making on granting Fast Cash Loans Online to new customers.
The buyers protection mechanisms such as the option to return debits for goods not delivered, so the seller bears the full payment risk. This means that businesses require a higher level of trust and additional safeguards may be indicated, such as digitally signed tender offers, a web research about the reputation of the supplier, and a proof of identity and creditworthiness of the seller.