4 steps to create and implement a new scoring model
Table of Contents
How do you build a credit score model?
4 steps to create and implement a new scoring model
- Step 1: Defining a goal. The first step is deciding on a goal, or what the scoring model is meant to predict.
- Step 2: Gathering data and building the model.
- Step 3: Validating the model.
- Step 4: Testing and implementing a new model.
What is scorecard developer?
Scorecard development describes how to turn data into a scorecard model, assuming that data preparation and the initial variable selection process (filtering) have been completed, and a filtered training dataset is available for the model building process.
What is a credit risk scorecard?
Credit Risk scorecards are mathematical models that attempt to provide a quantitative estimate of the probability that a customer will display a defined behavior (e.g. loan default, bankruptcy or a lower level of delinquency) with respect to their current or proposed credit position.
How are scorecard points calculated?
The score equation must satisfy the following: score + Points to Double Odds = ln(2*odds) * factor + offset. Subtracting the original score equation and solving for Points to Double Odds yields this result: Points to Double Odds = factor * ln(2).
What is PDO credit score?
A widely used convention in credit scoring is the concept of “Points to Double the Odds” (often abbreviated PDO), and this is the source of the ln(2) in the question. For example, how many points does the score change if the odds increase from 100:1 to 200:1.
What is the process for developing a scorecard?
After historical data have been prepared, the process of scorecard development requires that the following actions are performed: Preparation and selection of borrower characteristics that are used to develop the scorecard (including binning);
What are the technical activities involved in developing a credit scorecard?
This stage captures the main technical activities ( Data Collection, Data Cleansing, Exploratory Data Analysis, Risk Data Review, Model Development, Expert Analysis, Model Documentation etc.) that produce a complete credit scorecard Model Specification
How do I create the credit scorecard?
You have already set up the project and partitioned the input data. In this chapter, you will create the credit scorecard by performing the following tasks: 1. You will group the characteristic variables into attributes. 2. You will use a logistic regression model to create an initial scorecard. 3.
Is it possible to build a credit scorecard?
Building a credit scorecard need not even involve a statistical process if the domain does not support it (complexity, lack of data etc.)