What is Credit scoring?
Risk
Credit scoring is the technique of assigning an applicant a score that estimates their likelihood of repayment, combining internal data with external sources such as credit bureaus, behavioural data and alternative data. That score feeds the lending decision alongside policy rules.
How it works in practice
A score rarely decides on its own: it is combined with hard rules (age, current delinquency, watchlists) and with cut-offs by segment. A good engine shows which variables drove each score, so the decision can be explained and audited.
Related terms
Affordability
Affordability is how much a person can put toward loan installments without compromising essential expenses. It is estimated from their income and existing obligations, and it defines the maximum reasonable amount to grant.
Alternative data
Alternative data are non-traditional information sources —transactional behavior, open banking, device data, telco or utilities— that complement the credit bureau to assess applicants with little or no history. They make it possible to lend to populations traditional scoring can't reach.
Champion/Challenger testing
Champion/Challenger is a technique for improving credit policies by routing a share of traffic to an alternative policy (the challenger) and comparing its performance against the one in production (the champion). It lets teams validate changes on real data at controlled risk before adopting them.
Back to the full glossary.
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