A two-stage least cost credit scoring model

A two-stage least cost credit scoring model

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Article ID: iaor19981885
Country: Netherlands
Volume: 74
Issue: 1
Start Page Number: 159
End Page Number: 171
Publication Date: Nov 1997
Journal: Annals of Operations Research
Authors: ,
Keywords: financial
Abstract:

A least cost two-stage credit scoring model is developed and evaluated. The model is two-stage in the sense reflected by existing practice. That is, based on preliminary information, a decision is made to grant credit, deny credit, or to seek additional information before making a decision. If additional information is sought, the decision goes to the second stage, where a final decision to grant or deny credit is made. The model is based on an integer programming formulation that attempts to minimize the total combined cost of granting credit to likely defaulters, denying credit to likely payers, and for obtaining all of the information that is required to make the decisions.

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