Credit scoring: risk assessment of a candidate for borrowing by banks

To make a decision on whether to grant credit to a borrower, the banks carry out a credit scoring. It is a method of assessing the risks that the applicant represents.

Credit scoring

Banks and other financial organizations generally carry out a credit scoring, following any request for a mortgage, in order to assess the solvency of the client applying for the loan. It is a rating based on the borrower’s profession, the level of his income, his age, his civil status and the number of children he has. The most obviously considered points are the profession and the income of the borrower.

This rating technique is systematically used by banks because they want to prevent any risk of default by a borrower. Credit scoring is a method based on the “Value at Risk” technique. This consists of an assessment of the borrower’s risk taking into account only quantified elements.

Can the credit scoring be lacking in the borrower?

Developed to allow banks to limit their risks in terms of granting mortgage, the credit scoring technique seems rather reliable for banks but can however bring certain disadvantages to the candidate for the loan. In the case of a positive rating, the advantage is that this assessment facilitates the agreement of the bank because it wants to be reassured. The problem with credit scoring is that the results of the rating are of course only figures, which can then sometimes cause the rejection of a project, however good the borrower because it will be less considered by the bank than its results. credit scoring.

Credit scoring and the law

The rating of a borrowing candidate is based on data entry concerning him. Recorded in a database of the financial institution that performs the rating, this information is subject to respect for privacy. These cannot therefore be used by the bank if they do not enter into the financial and economic framework of the borrower. The legislation therefore prohibits financial institutions from including in their rating any element such as the origin or religion of the borrower. The institution in charge of ensuring the correct application of the legislation for credit scoring is the CNIL.