Skip to content

Explore Courses | Elder Research | Contact | LMS Login

Statistics.com: Data Science, Analytics & Statistics Courses
  • Curriculum
    • Curriculum
    • About Us
    • Testimonials
    • Management Team
    • Faculty Search
    • Teach With Us
    • Credit & Credentialing
  • Courses
    • Explore Courses
    • Course Calendar
    • About Our Courses
    • Course Tour
    • Test Yourself!
  • Mastery Series
    • Mastery Series Program
    • Bayesian Statistics
    • Business Analytics
    • Healthcare Analytics
    • Marketing Analytics
    • Operations Research
    • Predictive Analytics
    • Python for Analytics
    • R Programming
    • Rasch & IRT
    • Spatial Statistics
    • Statistical Modeling
    • Survey Statistics
    • Text Mining and Analytics
  • Certificates
    • Certificate Program
    • Analytics for Data Science
    • Biostatistics
    • Programming for Data Science – R (Novice)
    • Programming for Data Science – R (Experienced)
    • Programming for Data Science – Python (Novice)
    • Programming for Data Science – Python (Experienced)
    • Social Science
  • Degrees
    • Degree Programs
    • Computational Data Analytics Certificate of Graduate Study from Rowan University
    • Health Data Management Certificate of Graduate Study from Rowan University
    • Data Science Analytics Master’s Degree from Thomas Edison State University (TESU)
    • Data Science Analytics Bachelor’s Degree – TESU
    • Mathematics with Predictive Modeling Emphasis BS from Bellevue University
  • Enterprise
    • Organizations
    • Higher Education
  • Resources
    • Blog
    • FAQs & Knowledge Base
    • Glossary
    • Site Map
    • Statistical Symbols
    • Weekly Brief Newsletter Signup
    • Word of the Week
Menu Close
  • Curriculum
    • Curriculum
    • About Us
    • Testimonials
    • Management Team
    • Faculty Search
    • Teach With Us
    • Credit & Credentialing
  • Courses
    • Explore Courses
    • Course Calendar
    • About Our Courses
    • Course Tour
    • Test Yourself!
  • Mastery Series
    • Mastery Series Program
    • Bayesian Statistics
    • Business Analytics
    • Healthcare Analytics
    • Marketing Analytics
    • Operations Research
    • Predictive Analytics
    • Python for Analytics
    • R Programming
    • Rasch & IRT
    • Spatial Statistics
    • Statistical Modeling
    • Survey Statistics
    • Text Mining and Analytics
  • Certificates
    • Certificate Program
    • Analytics for Data Science
    • Biostatistics
    • Programming for Data Science – R (Novice)
    • Programming for Data Science – R (Experienced)
    • Programming for Data Science – Python (Novice)
    • Programming for Data Science – Python (Experienced)
    • Social Science
  • Degrees
    • Degree Programs
    • Computational Data Analytics Certificate of Graduate Study from Rowan University
    • Health Data Management Certificate of Graduate Study from Rowan University
    • Data Science Analytics Master’s Degree from Thomas Edison State University (TESU)
    • Data Science Analytics Bachelor’s Degree – TESU
    • Mathematics with Predictive Modeling Emphasis BS from Bellevue University
  • Enterprise
    • Organizations
    • Higher Education
  • Resources
    • Blog
    • FAQs & Knowledge Base
    • Glossary
    • Site Map
    • Statistical Symbols
    • Weekly Brief Newsletter Signup
    • Word of the Week

Blog

Industry Spotlight: Credit Scoring

  • May 23, 2019
  • , 2:25 pm

In the U.S., credit scoring is dominated by three companies – Experian, TransUnion and Equifax, employing roughly 30,000 people.  An important player in the scoring methodology is FICO, previously Fair Isaac Corporation, and the scores are typically called “FICO scores.”  Credit scoring is the oldest application of predictive modeling, fulfilling a need that has been around for millenia. Ever since the development of money and, hence, money-lending, lenders have needed to assess the creditworthiness of borrowers.

Fair Isaac first started selling credit scoring services in the late 1950’s, but it was not until the 1990’s that credit scoring agencies began leveraging the wider availability of data and applying statistical models.  Failure to pay, credit risk, is not the only risk facing the lending business. There is also interest rate risk – the risk that interest rates will move up or down, changing the value of loans with fixed interest rates.  Interest rate futures markets are effective mechanisms for managing this risk. Prepayment risk is the risk that a loan will be prepaid. This deprives the lender of a specified stream of income, but at least the principal is returned.  

Credit risk, on the other hand, entails the prospect of losing all or a portion of the principal.  Predictive models that can predict credit risk have proved transformative for the financial industry.  Accurate predictive models turned credit risk from something to be minimized, managed or avoided into something that could be priced.  Loans can be subdivided into tranches by their riskiness, and that risk can be accurately predicted and priced for each tranche. Now, instead of hazard and uncertainty, you have new products to sell!

Unfortunately, the financial industry took this process too far and began playing elaborate, obscure and sometimes fraudulent statistical tricks with their products.   Actual credit risk, the probability that a given borrower would repay a mortgage, and the real world predictors that can be used to estimate it, got lost in the haze. The result was the financial collapse of 2008.

 

Subscribe to the Blog

You have Successfully Subscribed!

By submitting your information, you agree to receive email communications from statistics.com. All information submitted is subject to our privacy policy. You may opt out of receiving communications at any time.

Categories

Recent Posts

  • March 9: Statistics and Data Science in Practice March 7, 2021
  • Feb 23: Statistics and Data Science in Practice March 5, 2021
  • Word of the Week – Ruin Theory March 4, 2021

About Statistics.com

Statistics.com offers academic and professional education in statistics, analytics, and data science at beginner, intermediate, and advanced levels of instruction. Statistics.com is a part of Elder Research, a data science consultancy with 25 years of experience in data analytics.

Latest Blogs

  • March 9: Statistics and Data Science in Practice
    March 7, 2021/
    0 Comments
  • Feb 23: Statistics and Data Science in Practice
    March 5, 2021/
    0 Comments
  • Word of the Week – Ruin Theory
    March 4, 2021/
    0 Comments

Social Networks

Linkedin-in
Twitter
Facebook-f
Youtube

Contact

The Institute for Statistics Education
4075 Wilson Blvd, 8th Floor
Arlington, VA 22203
(571) 281-8817

ourcourses@statistics.com

© Copyright 2021 - Statistics.com, LLC | All Rights Reserved | Privacy Policy | Terms of Use

By continuing to use this website, you consent to the use of cookies in accordance with our Cookie Policy.

Accept