Credit Scoring - a new day / a new idea.
admire the work achieved by Prof. Altman and I admire the passion and energy
which he still finds for the subject of Credit Scoring. I had the honour of attending a meeting in 2000 at which Prof. Altman was present and spoke. That was a
great day for me because I've read of his work since the 1970's.
admiration for Prof. Altman, I think that the 'z-score' is useless and could
even be dangerous in the context of the present day. I also find the concept
which is the basis for the 'z-score' is the same concept used by almost all
other score methods developed in many other countries, and for other industries.
In brief I think that there seems to be only one idea - Prof. Altman's original
idea - and almost everyone has copied that idea. Even the method used to 'verify'
scoring models uses the same concepts as those used in respect of the original
models focus on financial numbers generated in the past. However most business
failures are due to  bad (incompetent) management - including wrong
strategies - or  fraud (stealing from the company) or  external economic
factors beyond the control of management.
and dynamic credit risk scoring model must take these factors into account, as
well as the inherited financial condition of the company.
As analysts we
must remember  that financial information - even audited information - can
easily be manipulated and  that our risk (our invoice) will be paid - or not
paid - in the future, not the past.
is to 'predict' the future.
These are the
reasons why my model is different from the traditional models.
With my model I
try to copy or mimic or simulate the activity of a human credit analyst in
making a credit risk decision.
I designed my
model to be applied to any company in any country, but it is still under
development and it is difficult to prove its effectiveness.
professional credit analysts disagree with my proposed solution.
If you have
particular questions about the article I will be happy to answer, please send me
an email to: firstname.lastname@example.org.
You may find
the 'BIS Committee' or 'Basle Committee' or 'Basel Committee on Banking
Supervision' papers on Credit Scoring interesting. Read the Basel
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Last Updated: June 28, 2018 18:25 +0100