Credit Scorecards

Credit scorecards are tools used by financial institutions to evaluate the credit risk of borrowers by assigning scores based on various factors such as income, credit history, and outstanding debts. They are typically used to assess the likelihood of default and are often customized for different types of loans, such as mortgages, credit cards, or auto loans. Scorecards help lenders standardize credit decisions and determine whether to approve or deny a loan application.

Example

A bank uses a credit scorecard to evaluate mortgage applicants, scoring them on factors like income, employment history, and credit score to determine eligibility for a loan.

Key points

• Credit scorecards evaluate borrowers’ credit risk by assigning scores based on multiple factors.

• Used by lenders to standardize decisions on loans, credit cards, and other credit products.

• Help determine whether to approve or deny a loan application.

Quick Answers to Curious Questions

How do credit scorecards work?

Credit scorecards assign points to factors like income, credit history, and debt levels, helping lenders assess the likelihood of a borrower defaulting on a loan.