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What's the point of credit scoring?

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  • Loretta J. Mester

Abstract

Credit scoring is already widely used for consumer lending and is becoming more commonly used in mortgage lending. Now, small business lending is getting into the scoring act. What does this mean for the commercial loan industry? And will it benefit small businesses? In this article, Loretta Mester explains the basics of credit scoring, discusses some of the models used, and looks at some of the implications of the wider use of credit scoring.

Suggested Citation

  • Loretta J. Mester, 1997. "What's the point of credit scoring?," Business Review, Federal Reserve Bank of Philadelphia, issue Sep, pages 3-16.
    • Handle: RePEc:fip:fedpbr:y:1997:i:sep:p:3-16
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    File URL: https://www.philadelphiafed.org/-/media/frbp/assets/economy/articles/business-review/1997/september-october/brso97lm.pdf
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    References listed on IDEAS

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    1. Altman, Edward I. & Marco, Giancarlo & Varetto, Franco, 1994. "Corporate distress diagnosis: Comparisons using linear discriminant analysis and neural networks (the Italian experience)," Journal of Banking & Finance, Elsevier, vol. 18(3), pages 505-529, May.
    2. Altman, Edward I. & Saunders, Anthony, 1997. "Credit risk measurement: Developments over the last 20 years," Journal of Banking & Finance, Elsevier, vol. 21(11-12), pages 1721-1742, December.
    3. Robert B. Avery & Raphael W. Bostic & Paul S. Calem & Glenn B. Canner, 1996. "Credit risk, credit scoring, and the performance of home mortgages," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), vol. 82(Jul), pages 621-648, July.
    4. Mitchell Berlin, 1996. "For better and for worse: three lending relationships," Business Review, Federal Reserve Bank of Philadelphia, issue Nov, pages 3-12.
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    Keywords

    Credit scoring systems; Small business;

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