Introduction to Credit Scorecards

Financial institutions search for effective way to attract new creditworthy customers, and at the same time control losses. Credit risk scorecards offer powerful and empirically derived solutions to the business needs of banks, insurance companies and other financial institutions. They have been used for predicting bankruptcies, fraud, or recovery of amounts owed for accounts in collections. Risk scoring is a tool used to evaluate the level of risk associated with applicants or customers. Scorecard development also increases the knowledge base within organization and allows better understanding of customers’ risk behavior and leads to better strategy development.

The areas that will be covered during the presentation are general information about predictive risk scorecards and an overview of the scorecard development process. The key concepts and the main stages of scorecard development will be introduced. As an introduction, FICO score is going to be used to show the general use and the importance of credit risk score. Three main types of scorecards used in banks, namely acquisition, behavioral and marketing scorecards will be presented with their characteristics and purpose.

 

Karen Oganezov is Sr. Quantitative Manager, VP at RBS Citizens Bank in Boston, MA. He has a PhD degree in Industrial Engineering and a MBA degree with concentration in Finance. Karen is also 1997 AUA alumnus from IE program. He has over 8 years of experience in Financial industry including design, implementation and testing of credit scorecards, and PD/LGD/EAD models in both retail and wholesale credit risk areas. Karen conducts independent reviews, assessments and validations of Basel and CCAR Stress Test models for both retail and wholesale portfolios.