Building Effective Portfolio Management Tools

Date: May 18, 2011

Most generic credit scores essentially provide the same capability to lenders: Rank order consumers based on their propensity to default, where default is defined as becoming 90 or more days late on a debt within a two-year timeframe. The score places higher credit quality consumers at the higher end of the score range and lower quality consumers at the lower end of the range. If a score of 700 was identified on a score with a range of 500 to 1000, then a 700 might represent “C” quality credit. But a 700 score on a range of 300 to 900 is more likely to represent “B” quality credit. Knowing the scale range that a particular score falls within is necessary for proper interpretation of the score. The mathematics of credit scoring always defines the score in the context of its range – the minimum and maximum possible values that can be achieved. When scores are quoted, it’s critical to also quote the range in order to convey an accurate understanding…

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