Business Credit Scoring--A New Approach.

Publication: Business Credit

Publication Date: 01-MAR-01

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COPYRIGHT 2001 National Association of Credit Management

Credit scoring models have been used in the consumer credit market for quite some time. Based on the success of these models in assessing and calibrating risk, business credit providers are increasingly using scoring systems in decisioning. Should companies develop these systems in-house or use an outsource provider? The challenges that credit managers face in developing in-house systems lies in building adept models with limited resources. Adaptive credit scoring systems offer an attractive solution, utilizing a broad range of data and proven scientific methodologies on an outsourced basis.

Scoring Roots

Historically, businesses sold to individuals they personally knew had the willingness and ability to pay. As businesses became larger and as the number of new customers grew, there was a need to establish a more systematic and efficient method for understanding the risk they assumed. The solution they found was scoring.

Credit scoring has become a successful method of appraising and standardizing consumer receivables. Lenders have used scoring tools to segment and price the various classes of their credit portfolio, to establish pricing and to monetize these assets. The capital markets have been able to better understand the risk involved in these monetizations due to the calibration and standardization provided by...

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