Credit Scoring System Explained in Layman Terms
Appraising applications for credit card is the first line of defense against fraudulent transactions or bad credit customers.
Banks have used various methods and techniques to appraise credit card applications received from prospective customers.
Many techniques have been developed and one of the most popular techniques used today is the credit scoring system.
Money is a universally demanded product and there is rarely a shortage of requests for credit, thought they may well be a shortage of suitable applicants.
Credit scoring system is software that automates the process of appraising applications.
The system makes use of information obtained from several banks to establish a scheme for vetting application.
Credit scoring involves the establishing of certain factors common to a majority of accounts in arrears.
These can be tabulated and weighted according to the important of each.
Fraud syndicates often try to beat the system by doctoring an application to score well.
The maximum score cut-off at 900 is to cut off fraud and also unprofitable customers who score well.
The rationale is if an applicant scores very highly why does he want to borrow? Banks therefore look at both ends of the optimum score range, although a high scorer may simply seek the convenience of a credit card.
If an applicant falls within the optimum score range, the credit card may be issued automatically with no further check (different banks have their own criteria).
If an applicant scores below the minimum score range, the application will be politely declined.
Applications which are borderlines will be review manually for possible approvals.
The credit scoring system is designed to indicate the range within which there is a probability of the applicant proving to be satisfactory.
If an applicant falls below that there is a strong possibility that he will not be able to complete the transaction.
Yet such applicants may prove to be good and reliable customers and the banks do not want to turn away any reasonable risk.
So there is a human decision built into the credit scoring system to handle these borderline cases.
Credit scoring system is a major area of interest for credit card issuing banks.
There is growing realization that a system created for credit card loans may not be suitable for another type of loans such as personal loan, housing loan, etc.
The credit scoring system is evolving and the system is getting more and more sophisticated as times go by.
Banks have used various methods and techniques to appraise credit card applications received from prospective customers.
Many techniques have been developed and one of the most popular techniques used today is the credit scoring system.
Money is a universally demanded product and there is rarely a shortage of requests for credit, thought they may well be a shortage of suitable applicants.
Credit scoring system is software that automates the process of appraising applications.
The system makes use of information obtained from several banks to establish a scheme for vetting application.
Credit scoring involves the establishing of certain factors common to a majority of accounts in arrears.
These can be tabulated and weighted according to the important of each.
Fraud syndicates often try to beat the system by doctoring an application to score well.
The maximum score cut-off at 900 is to cut off fraud and also unprofitable customers who score well.
The rationale is if an applicant scores very highly why does he want to borrow? Banks therefore look at both ends of the optimum score range, although a high scorer may simply seek the convenience of a credit card.
If an applicant falls within the optimum score range, the credit card may be issued automatically with no further check (different banks have their own criteria).
If an applicant scores below the minimum score range, the application will be politely declined.
Applications which are borderlines will be review manually for possible approvals.
The credit scoring system is designed to indicate the range within which there is a probability of the applicant proving to be satisfactory.
If an applicant falls below that there is a strong possibility that he will not be able to complete the transaction.
Yet such applicants may prove to be good and reliable customers and the banks do not want to turn away any reasonable risk.
So there is a human decision built into the credit scoring system to handle these borderline cases.
Credit scoring system is a major area of interest for credit card issuing banks.
There is growing realization that a system created for credit card loans may not be suitable for another type of loans such as personal loan, housing loan, etc.
The credit scoring system is evolving and the system is getting more and more sophisticated as times go by.
