Cut-Off Score

From Open Risk Manual

Definition

A Cut-Off Score is a numerical threshold (value) (also Acceptance Level) that is used to support the Credit Decisioning step of a Credit Origination process.

Usage

The value of a Credit Score produced by a Credit Scorecard is compared with the cut-off score and produces a binary indicator (Yes/No) which can then be used as-is to trigger a credit decision (e.g., reject / accept), in which case we are talking as a Hard Cut-Off, or prompt other management action

The selection of a cut-off score is crucial in balancing business objectives (e.g. for portfolio growth, profitability, competitive position) versus the firm's Risk Appetite. That balancing act is usually expressed as an optimization problem.

See Also

Contributors to this article

» Wiki admin