Credit Scoring System
A Credit Scoring System is the set of tools and methodologies that assist with the creation of Credit Risk metrics (for example in the form of Credit Scoring), which in turn assist with the Risk Management of credit portfolios. The objective or a scoring system is to rank borrowers systematically with meaningful credit risk quality differentiation.
A credit scoring system will include a number of components depending on the complexity and scope of its application. For example:
- A Credit Scoring Scale, a delimited range of credit scores to which all credit exposures must be classified
- A collection of Credit Scoring Models
- For regulated financial services firms in particular, the credit scoring system might provide input towards Risk Parameters such as Probability of Default Models (for a single period or a full Term Structure
Institutions must have specific definitions, processes and criteria for assigning exposures to credit scores