If you have ever asked for a loan, you have heard the expression scoring or credit scoring. But what exactly is scoring? To what extent does it affect me when I ask for a loan? In this article we will clarify all your doubts.
Scoring is nothing more than a computer program that helps banks make decisions about their clients’ risk. It is a statistical tool, let’s call it Artificial Intelligence, which recommends the bank whether or not to approve a financing operation.
The scoring is the financial Skynet of the real world, an AI capable of evaluating, eliminating the human bias, the risk profile of each person to predict with a large percentage of success if this will be able to return or not a certain loan in the future.
Its objective is to standardize the answers to ensure that the applicant meets one by one all the requirements demanded by the financial institution for the granting of the loan. Being a computer program, there is no bureaucracy or downtime: the answer is immediate. As soon as the data is entered, the AI gives its verdict.
What type of information does the scoring take into account?
The greater the information that the scoring processes, the more reliable your results will be. Any scoring part of a previous information about the client that obtains from the database of the bank : his age, profession, link with other clients of the entity, current and historical balances, financial products contracted, income, domiciled expenses, credit history, information about Financial Credit Institutions
In many cases, this information is more than sufficient to assess your ability to pay and the level of risk that the entity would assume. However, the bank may request additional information for a more complete scoring: type of labor contract of the interveners, justification of the purpose of the loan, patrimonial information, appraisals, registration data…
How does scoring affect you?
Depending on the entity, the scoring can be binding or not. This means that, when it comes to the truth, the last decision on the loan is usually made by a human being. There are entities that only consider scoring in an informative way, compared to others in which this is decisive and conditions the decision almost definitively.
Scoring works very well for bulk or standardized loans. However, if you have to debug a bit and personalize the credit, they are not reliable. It may happen that scoring today for a loan of 30,000 euros and that tomorrow the amount drops to 24,000.
Pre- approved loans, for example, are the result of a bank passing the score to its customer database. The AI decides, based on the information available to the bank and external databases, what is the amount of debt and the return period that each person could assume.
In short, scoring is a very powerful and useful tool that makes it easier for banks to evaluate risks by canceling the emotional component. But this is not enough for his verdict to be exhaustive. At the end of the process there must be a human being who reviews the case, assesses all the information and makes the final decision on whether or not to grant the loan.