The Impact Of Credit Scoring And How Best It Can Be...

In this chapter, i aim to present a background on the changes in credit scoring and how best it can be implemented within the nancial sector, also highlighting past researches done on the issues with credit scoring and show the approach used in achieving their results. 2.2 Credit The term credit can be dated back as far as when human languages and friendships began. In the past people borrowed cowries (a form of money in certain areas of the world) from friends to take care of personal issues with the intention of paying back as soon as their crops were harvested and sold during the market days. As civilisation progressed,credit grants became more important to individuals, Small and large organisations to fund businesses and living†¦show more content†¦The history of consumer credit scoring can be dated back to half a century ago [3]. However, history records the same approach was used to identify groups in a population even before. In 1936 Fisher came up with the rst approach a method that identied various groups in a population. He was keen to nd out the dierences between two varieties of iris through the measurement of the physical sizes of plants, thus ascertaining the dierence in the origins of skulls using their physical measurement. In 1941, Durand discovered that the same credit scoring technique could be used to distinguish between good and bad loans. Though his research project was for the National Bureau of Economic Research, it wasn t used for any predictive purpose. Due to the positive eect of credit scoring in credit cards, banks in the 1980s started using credit scoring in personal , home and small business loans, a method which is still utilised till date [1]. Credit unworthiness has always been a problem encountered by the nancial sectors as they are faced with lapses regarding the credit they oer to individuals and corporate bodies. The credit obtained from nancial sectors is sometimes not repaid. To minimise the risk of unpaid credit, nancial sectors have devised a number of techniques to mitigate this risk. One of such techniques discussed in the latter part of this report, is credit scoring. Credit