Browse Books

Reviewer: James Speybroeck

Put simply, credit scoring is a set of methods for aiding lenders in the crucial decision of who should and should not receive credit. In this exciting book, the authors present their findings and methods with meticulous detail. The book begins with an excellent and very readable chapter on the history and philosophy behind credit scoring. Chapter 2, on the practice of credit scoring, is a template of the preliminary steps necessary before additional issues are discussed. Chapter 3 is an interesting discussion of economic cycles, and of how those cycles affect the credit scoring procedures. It is in this chapter that the reader is convinced of the authors’ seriousness in presenting their rationale for credit scoring. Their discussion is not cosmetic, and they are very detailed in their presentation. Chapter 4 is a discussion of the statistical methods used in credit scoring. The emphasis is on the use of discriminant analysis and logistic regression. Again, the chapter is very well detailed. Chapter 5 discusses non-statistical methods for credit scoring. Chapter 6 addresses the problems of repayment and usage behavior. Again, the treatment is based on solid mathematical models, and is neither anecdotal nor cosmetic. Chapter 7 addresses assessment of performance in the building of a credit scorecard. Topics include a discussion of error rates, cross-validation, bootstrapping and jackknifing, and separation measures. The delta approach, for comparing actual and predicted performance, is then covered. Chapter 8 provides an overview of some of the practical issues of credit scoring. These issues include sample selection and the choosing of attributes. Chapter 9 discusses the implementation of the credit scorecard. Chapter 10 continues with application, but looks at additional areas of application, such as prescreening, preapproval, fraud prevention, mortgage scoring, small-business scoring, risk pricing, credit extension, transaction authorization, debt recovery, and provisions for bad debt. Chapter 11 discusses credit scoring in other areas of the business community, such as direct marketing, profit scoring, tax inspection, payment of fines, and other less used arenas. Chapter 12 discusses new methods under study for developing effective credit scorecards. Chapter 13 is particularly interesting, comparing and contrasting how different international communities deal with credit scoring. The book concludes with a chapter on the use of credit scoring for a profit-scoring system, rather than a default-risk system. Those involved in credit scoring will not only find this book interesting, they may also find that they have in their possession a paradigm for the industry. The book is exceptionally well documented and detailed. The authors are not only scholars, but also effective writers and practitioners. If you are involved in credit scoring, this text should be in your library. Online Computing Reviews Service