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Credit Scoring - a new day / a new idea.

I 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.

Despite my 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 'z-score'.

Almost all models focus on financial numbers generated in the past. However most business failures are due to [1] bad (incompetent) management - including wrong strategies - or [2] fraud (stealing from the company) or [3] external economic factors beyond the control of management.

An effective 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 [1] that financial information - even audited information - can easily be manipulated and [2] that our risk (our invoice) will be paid - or not paid - in the future, not the past.

The challenge 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.

Many professional credit analysts disagree with my proposed solution.

You will find details of my method on this web site: Trade Credit ScoreCard.
The Trade Credit ScoreCard includes a PowerPoint presentation which lists the aspects which I score.

If you have particular questions about the article I will be happy to answer, please send me an email to:

You may find the 'BIS Committee' or 'Basle Committee' or 'Basel Committee on Banking Supervision' papers on Credit Scoring interesting. Read the Basel Committee comment.

Ron Wells


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Last Updated:  June 28, 2018 18:25 +0100