What Is a Credit Scoring System and How Does It Work?

Credit Scoring System

Turning to a microfinance organization for help, you expect quick money without any questions. This is the essence of the work of payday loan lenders. In fact, sometimes they may refuse. Like other lenders, microcredit companies check their borrowers. For this, a request is submitted to the Bureau of Credit Histories. In addition, information from the borrower’s social networks is processed, data from the questionnaire is checked (special attention is paid to the employer and proxies). For you, as a client, it takes 10-15 minutes, for the lender, intensive work of a group of specialists and automatic processes.

A modern analysis tool is scoring. The data on the borrower are entered into the program, and in a matter of minutes the credit history, financial transactions, delays and other are analyzed. At the exit, the loan officer receives a report evaluating the borrower’s “responsibility”.

How Does Scoring Analysis Work?

This tool was first tested in the USA in the first half of the 20th century. For the study, information about a person is taken from open sources, and a point is awarded or not accrued for each item. For example, age – from 0.1 to 0.3 points (the older the person, the higher the score); sex – 0 for men, 0.4 for women (the weaker sex is considered a more responsible payer and less prone to risks and adventures); working risks – 0 points for people in hazardous industries, 0.16 – for work with moderate risk, 0.55 points – safe work, etc.

Modern scoring is somewhat different from the classic one, assessment criteria are focused on modern realities, but the principle remains the same – creating an emotional, financial, and demographic portrait of a potential client.

Internet Loans: The Faster the Better!

The peculiarity of quick loans is that they are fast, and the higher the processing speed, the more customers will apply for money. Therefore, modern computers and advanced software are used for data processing. The leaders in this direction are traditionally the United States. Scoring made it possible to reduce labor costs for evaluating customers, as a result, operating expenses decreased. The analysis itself takes place in several stages:

  • Scoring application. Data for analysis is taken directly from the applicant’s questionnaire. The data specified by the potential client is evaluated without external verification of their reliability.
  • Scoring behavior. The robot scans the user’s actions on the lender’s website: for how long a person read the conditions, which fields were filled in, and which ones were missed, how long it took to enter all the data, etc.
  • Scoring anti-fraudster. The data from the questionnaire are compared with the database of unscrupulous borrowers, external open and closed databases.

If you’ve a bad credit history, you have chances to get a loan approval because there are many lenders who are ready to provide you with financial help.