An application of cluster analysis in credit control

Cluster analysis has existed as a statistical tool for some time, although its entry into the world of credit has been belated and mainly through applications in marketing. It does, however, have some applications in credit scoring and account management. Most uses of cluster analysis in this area would treat each borrower as an individual case, and attempt to find clusters of borrowers that are of financial benefit. In this paper, however, a different classification is utilized. The investigation was carried out to answer two business questions. While neither of these could be answered successfully, one possible method of early warning of a change in the business environment did become apparent.