Ranking borrowers by a statistical score based on their characteristics. Lenders use it to accept, price and monitor loans.
Where you will meet it
Credit scoring comes up in 4 learning outcome notes across the FRM syllabus.
A few of them:
Credit Scoring and Rating FRM Part II · Credit risk measurement and management
“Credit scoring and credit rating both rank borrowers by credit quality but differ in form and use.”
The Financial Stability Implications of Artificial Intelligence FRM Part II · Current issues in financial markets
“In financial firms the established uses are fraud detection and anti-money-laundering monitoring, credit scoring and insurance underwriting, and algorithmic trading and portfolio signals.”
Credit Scoring and Retail Credit Risk Management FRM Part II · Credit risk measurement and management
“Credit scoring models are grouped by purpose.”
Credit Scoring and Retail Credit Risk Management FRM Part II · Credit risk measurement and management
“A scorecard is judged on rank ordering and then monitored.”
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