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The Evolution Of The Credit Scorecard

May 13, 2008
Credit risk comes as a given for credit card companies and other financial institutions. Yes, these financial institutions deal with credit risk practically every single work day they operate. This is precisely why these companies have to adhere to the strict implementation of a credit scorecard. This way, the scorecards can measure the performance and progress of the companies themselves when it comes to handling credit risks efficiently.

There are various ways for a financial institution to get hold of credit scorecards. One of these is from credit risk vendors. These professionals work outside of the financial institution itself, meaning, they are not included in the official roster of employees. However, these credit risk vendors do work for other lending companies, so they are very familiar with the proper and efficient development of credit scorecards. A lot of financial institutions do benefit much from using the credit scorecards developed by these outside vendors.

However, the practice of enlisting the services of these vendors is fast being replaced by the use of in-house credit scorecards instead. This is due to the fact that technological advancements are becoming increasingly rampant, making it so much easier for financial institutions to develop their own credit risk scorecards. There are so many advantages that come with the usage of in-house credit risk scorecards. For one thing, the development of such a scorecard would not be that costly, especially when compared with the credit scorecard being developed outside the company. Since the development takes place just within the company, then a more reasonable budget would be allotted to it. Making the credit scorecard would also be faster, since there are no external factors to depend on anymore. Plus, there will surely be more flexibility when it comes to creating the scorecard itself. Hiring outside vendors means you would have to adhere to their own system when they develop the scorecard for you. With an internal system brewing this up for you, you no longer have to keep in mind this foreign system and their rules.

Because there are so many software applications available for the development of credit scorecards, many employees have also equipped themselves with the necessary know-how for efficient development of such tools. The great thing about these software applications is that they are more readily available today. The main hindrance that discourages most companies from investing much on computer software is the fact that most applications come at high prices. Fortunately, this is not the case with credit scorecard applications at all. Rather, these applications can be bought at very low prices, either from physical stores or online stores. With the stiff competition amongst companies manufacturing these applications, it is no wonder that these are priced quite reasonably.

Aside from technological advancements in the development of the software applications themselves, the medium of data storage has also undergone significant advancements. The compilation of all the needed data into just a single storage area has been fully developed, thereby making the next logical step of analysis more convenient.

With all of these updates, the credit scorecard has definitely become one of the most important tools financial institutions make use of today. After all, these enterprises deal with credit risks every single day. Thus, an efficient system of developing tools that keep track of credit risk performance should then be implemented.
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