Anatomy of credit scoring models

Abstract

Introduced in the 70s, the use of credit scoring techniques became widespread in the 90s thanks to the development of better statistical and computational resources. Nowadays, practically all financial entities use these methodologies at least to originate their financing. Given their relevance in the credit management process, the objective of this work is to clarify some aspects associated with credit scoring models: what they are, what techniques can be used to build them and which ones are more convenient, what variables they use, what applications have developed from them and, above all, how they work and how their results should be interpreted. With the sole purpose of serving as an example, a credit scoring model was built with data from the Central Debtors of the Financial System that makes it easier to understand the operation of these tools.

JEL classification: C25 ; G32