Corporate Credit Scoring Models: Approaches and Standards for Successful Implementation

Posted: 4 Aug 1999

See all articles by Edward I. Altman

Edward I. Altman

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

Robert Haldeman

affiliation not provided to SSRN

Multiple version iconThere are 2 versions of this paper

Abstract

A number of banks have recently undertaken a reassessment of their credit-lending process. The banks' 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 ("ground up" or "firm-intrinsic" approach) and supplementary ("top-down" or "firm capital market") 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 lossrates and loan pricing criteria.

JEL Classification: G21

Suggested Citation

Altman, Edward I. and Haldeman, Robert, Corporate Credit Scoring Models: Approaches and Standards for Successful Implementation. Available at SSRN: https://ssrn.com/abstract=6335

Edward I. Altman (Contact Author)

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

44 West 4th Street
New York, NY 10012
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New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

Robert Haldeman

affiliation not provided to SSRN

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