Almost everyone who at least once received a refusal to get a loan heard the following phrase from the manager: “The decision was made by the scoring system. Your reliability indicators as a borrower are not normal. ” What is this norm, what is scoring, and how to get a "credit detector" to "excellent"? Let's try to figure it out.
General information
So what is scoring? This is a kind of system for assessing the reliability of the borrower, built on a number of parameters. When a person applies for a loan, the first thing they are asked to do is fill out a form. Questionnaire questions were invented for a reason. This is the scoring model for evaluating a potential borrower. Depending on the answer, a certain number of points is assigned for each item. The more there are, the higher the likelihood of a positive decision on the issuance of funds.
There is one caveat. If you have a negative credit history, then further answers to the questions and the number of points scored most often do not matter anymore. This fact alone is enough to refuse.
Goals and objectives of scoring in modern banks
Any scoring model used in the credit system is introduced in order to obtain such results:
- an increase in the loan portfolio due to a decrease in the share of unreasonable loan refusals;
- speeding up the process of evaluating a potential borrower;
- decrease in the level of non-repayment of credit funds;
- improving the quality and accuracy of the assessment of the borrower;
- centralized accumulation of customer data;
- decrease in provisions for the amount of probable losses on loans;
- assessment of the dynamics of changes in the individual credit account and the entire loan portfolio as a whole.
Credit scoring: how does it work?
To achieve their goals, banks use a scoring model for assessing creditworthiness. It involves minimal impact on the result of a biased managerial attitude or collusion of bank employees.
Almost all information entered in the questionnaire should be confirmed by the presence of documents. The bank manager in this case plays a purely technical role - it enters the data into the program. When all the questionnaire items are circled, the computer program calculates and displays the result - the number of points you have earned. Further, the situation may develop in different ways.
If you scored too few points, you can be sure: the loan will be refused.
Was the score much higher than average? If the loan amount is small, a decision can be made right on the spot. If you are applying for a rather impressive amount, you will be informed that you have passed the first stage of the audit and the application has been submitted to the bank security service for consideration.
Does the number of points “float” in the middle? The manager is likely to require a surety or assign a series of additional checks.
Types of scoring
In general, the scoring model consists of seven types of assessment, four of which are related to lending, and three to marketing. For credit practice, the following types of scoring are characteristic:
- On request (application scoring). This model is most often used to assess the reliability and solvency of customers. It was built, as already mentioned, on evaluating the questionnaire and assigning each answer an appropriate number of points.
- From fraud (fraud scoring). It helps to identify potential scammers who managed to pass the first stage of testing. The principles, methods and methods of testing for fraud are the trade secrets of each bank.
- Prediction of behavior (Behavioral scoring). Here, an analysis of the behavior of the borrower in relation to the loan, the likelihood of changes in solvency. Based on the evaluation results, the maximum loan amount is adjusted.
- Work on returns (Collection-scoring). This model applies to bad loans, at the stage of repayment of unpaid debts. The program helps to formulate an action plan for repaying a loan: from a warning to referring a case to a court or collection company.
The other three look like this:
- Pre-Sale Assessment (Pre-Sale) - identifies the potential needs of the borrower, allows you to offer an additional product.
- Response - assesses the likelihood of a client agreeing with the proposed lending programs.
- Attrition - assessment of the likelihood that the client will terminate his relationship with the bank at this stage or in the future.
Disadvantages of the scoring system
Assessment of the creditworthiness of individuals has its drawbacks. The main thing is that the system is not flexible enough and does not adapt well to real parameters. For example, a scoring model adopted in the USA will give a high score to a person who has changed a large number of jobs. Such a person is considered a wonderful specialist, very much in demand in the labor market. In our country, such a fact will play a cruel joke with the borrower. The highest score will be given to a person who has only one entry in the labor record. If the borrower often changes the employer, then he is considered unreliable, unsociable and poor specialist. His rating in the eyes of the bank is rapidly falling, because the next dismissal may not be followed by new work, which means that delays in payments will begin.
In order to adapt the system to our living conditions as much as possible, questionnaires for evaluation should be developed by specialists of the highest category and qualifications. But any results obtained in this way will still be dependent on the opinion and influence of a person. So, an absolutely impartial assessment still fails.
So any scoring system has at least two drawbacks:
- the high cost of adaptation to modern realities;
- the influence of the subjective opinion of a specialist on the choice of a client assessment model
In addition, the grading system itself is also imperfect. The fact is that when scoring only the formal state of things is taken into account. The system is not able to correctly assess reality. For example, if a client has a room in a communal apartment on Arbat, then the system will give him a high score. After all, there is a Moscow residence permit and housing in the center. A luxurious mansion with an area of several thousand square meters, located in a small village on the Black Sea coast, the system will designate as "housing in the village" and reduce the score for the lack of Moscow registration.
What data is involved in building a model
In cases where an assessment of the creditworthiness of individuals is carried out, a bank employee should rely on a number of criteria. All of them can be divided into three large groups, each of which includes many indicators.
Personal:
- passport data ;
- marital status;
- age;
- the presence of children, their age and number.
Financial:
- the amount of the main monthly income;
- Place of work, position;
- the number of entries in the workbook;
- employment period in the last company;
- the presence of encumbrances (debts, outstanding loans, alimony and other payments);
- availability of own housing, car, bank accounts and deposits.
Additional:
- the existence of additional sources of income that are not documented;
- the possibility of providing a guarantor;
- other information.
The scoring model for assessing the creditworthiness of a legal entity is built in a slightly different way. Here, the key parameters are considered financial indicators. But since they are calculated on the basis of the financial statements of the applicant campaign, in which case they can be adjusted. Given this possibility, the objectivity of the assessment is greatly reduced. Therefore, scoring with dynamic indicators is used to evaluate legal entities.
The first step is based on the collection of information that cannot be calculated by material indicators. These include business reputation, market position, expert opinion on financial and economic sustainability.
The next step is the determination of financial indicators. Here we study the ratios of liquidity, provision with own funds, objective indicators of financial stability, profitability, turnover of funds and so on.
Based on the results of two independent evaluations, the bank decides on a loan.
Who can get a high rating
If we talk about individuals, then the assessment of the borrower is also carried out on many indicators. There are many factors that can positively affect the rating:
- high salary;
- the presence of own movable and immovable property;
- long stay in a specific region;
- availability of deposits;
- documentary evidence of income;
- the presence of a landline telephone at home and at work;
- confirmation of official employment, especially in state enterprises and in the public sector;
- availability of open accounts (deposit, pension, settlement) in the creditor bank;
- the presence of a significant amount of the advance payment upon receipt of a mortgage or car loan;
- the possibility of providing recommendations, guarantor or co-borrower;
- great credit history.
How to trick the system and can it be done?
It is believed that once the evaluation is carried out by a soulless machine, then it can be fooled by finding out the “correct” answers to the questions in advance. In fact, this is far from the case.
The scoring model for evaluating a client is structured in such a way that all answers to questions can be checked using the appropriate documents. In addition, banks often integrate into entire networks and dump their test results into one common system. So if in the process of additional verification the fraud is revealed, a fat cross will be put on your reputation of the borrower. Nowhere and never will you get a loan again.
You can try to embellish reality only in the event that data is entered into the system only from the words of the client. However, finding such a bank is quite difficult, and the interest there is so predatory that you yourself are unlikely to want to get a loan there.
Scoring and credit history
If we take into account that at least half of the inhabitants of our country already had experience applying for a loan, such a measure of borrower assessment as credit history is in the forefront. Since BKI has for some time been replenished with data on borrowers of microfinance organizations and other similar institutions, scoring models have appeared on the market, adjusted for the presence and condition of the credit history.
These models evaluate borrowers by the probability of defaults, delinquencies, the number of previously repaid loans and other parameters.
In addition, banks are offered the service of automatic customer information. Having connected such a service, the bank will know:
- on opening customer accounts in other financial institutions;
- on obtaining new loans;
- the occurrence of any delays;
- new passport data of the client;
- on changing limits on accounts, credit cards, and so on.
This will make it possible to further regulate the banking scoring system and receive maximum information about potential borrowers.