Corporate Credit Scoring Models: Approaches and Standards for Successful Implementation

32 Pages Posted: 11 Nov 2008

See all articles by Edward I. Altman

Edward I. Altman

New York University (NYU) - Salomon Center; New York University (NYU) - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: 1995

Abstract

A number of banks have recently undertaken a reassessment of their credit-lending process. The banksâ¬" endeavors coincided with the efforts of a small, but growing number of vendors who have developed systems to assess both public and private corporations. The purpose of this article is to define the qualities of a carefully developed and rigorously tested credit modeling system for assessing the attractiveness of lending opportunities. We identify and discuss several types of credit evaluation systems and their relative importance. These systems are classified as primary (â¬Sgroup upâ¬? or â¬Sfirm-intrinsicâ¬? approach) and supplementary (â¬Stop-downâ¬? or â¬Sfirm capital marketâ¬?) approaches. The crucial step in evaluating any of these systems is the thorough testing of the results and the establishment of rigorous standards for acceptance. In addition to these standards, we discuss the role that an acceptable credit system can play as the link between individual loan assessment and logically derived estimates of expected loss rates and loan pricing criteria.

Suggested Citation

Altman, Edward I., Corporate Credit Scoring Models: Approaches and Standards for Successful Implementation (1995). NYU Working Paper No. FIN-95-001, Available at SSRN: https://ssrn.com/abstract=1298308

Edward I. Altman (Contact Author)

New York University (NYU) - Salomon Center ( email )

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New York University (NYU) - Department of Finance ( email )

Stern School of Business
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