Credit Scorecard Validation
Definition
Credit Scorecard Validation is the set of activities that aim to provide assurance that the Credit Scorecard Development process has produced a Credit Scorecard that is fit-for-purpose.
The Model Validation stage (sometimes bundled or iterated with the development stage) provides a more or less formal review of a developed scorecard. When scorecards are used in regulated / audited context activities at this stage may formally reject the scorecard, offering concrete reasons and possible recommendations
Validation Elements
The validation stage will include some or all of the following steps, depending on the rigour / independence required
- Review of conceptual methodology (the Abstract Risk Model)
- Review of the practical development steps
- Independent replication of the Risk Model
- The development of a Challenger Model
Outcomes
A set of recommendations (in the form of documentation) which may suggest modifications (or even Credit Scorecared Decommissioning), improved monitoring or other relevant actions
