How You Define a Scoring Model Calculation
Use the Scoring Model pages to create and update a scoring model to use in the calculation of the credit score for a customer or customer account.
The scoring model calculation for the credit score depends upon these scoring attributes assigned to each data point in the scoring model:
-
Data point ranges of values.
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Score assigned to each data point range of values.
-
Weights assigned to each data point.
The totality of the data points, their relative weights, and the scores for each of their range of values is the scoring model calculation used to arrive at a credit score.
Assign Scores
For each data point that the scoring model includes, you must assign a range of values and a corresponding score for each range. The ranges of values for a data point typically represent levels of credit risk.
For ranges, you can enter numeric ranges, and alphanumeric ranges with one range value per row for data points that are scorable.
For scores, you must enter numeric values. The corresponding credit risk is either the result of ascending or descending numeric scores, depending on how you arrange them.
This table illustrates sample ranges and scores for the Percentage of Invoices Paid Late data point:
|
Credit Risk |
From Range |
To Range |
Score |
|---|---|---|---|
|
Low |
0 |
10 |
100 |
|
Moderate |
10 |
60 |
50 |
|
High |
60 |
100 |
0 |
This table illustrates sample ranges and scores for the Days Sales Outstanding (DSO) data point:
|
Credit Risk |
From Range |
To Range |
Score |
|---|---|---|---|
|
Low |
0 |
10 |
100 |
|
Moderate |
10 |
25 |
60 |
|
High |
25 |
50 |
25 |
|
Highest |
50 |
100 |
10 |
Assign Weights
Assign a weighting factor to each data point to indicate the relative importance of each data point in the scoring model. Your definition of "relative importance" depends on how you plan to use a scoring model.
For example, if you're creating a scoring model to determine a credit limit increase for an existing customer with years of credit history with your enterprise, you might assign a higher weighting factor to the Percentages of Invoices Paid Late data point, and a lower weighting factor to, for example, data points that represent credit agency scores or ratings.
To continue with the example, this table illustrates the possible weighting factors for the two data points Percentage of Invoices Paid Late and the Days Sales Outstanding (DSO) data points:
|
Data Point |
Weight |
|---|---|
|
Percentage of Invoices Paid Late |
75 |
|
Days Sales Outstanding (DSO) |
25 |
In this example, the respective weights contribute to the total credit score in this way:
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Percentage of Invoices Paid Late weight is 75/(25+75)=75% or 0.75
-
Days Sales Outstanding (DSO) weight is 25/(25+75)=25% or 0.25
The Percentage of Invoices Paid Late weight contributes 75% toward the total credit score. The Days Sales Outstanding (DSO) weight contributes 25% toward the total credit score.
Calculate the Score
This scoring example illustrates how the credit score is calculated, based on the scoring model defined in the previous examples.
The calculation of a credit score is the sum of the weighted points earned expressed as a percentage. A point earned is the score assigned to a data point value, determined by the scores assigned to the data point ranges. A weighted point earned is the product of the point earned and the weight assigned to the data point.
This table shows the points earned for the credit case folder that uses this scoring model:
|
Category |
Data Point |
Value |
Points Earned |
|---|---|---|---|
|
Billing and Payments |
Percentage of Invoices Paid Late |
57% |
50 |
|
Billing and Payments |
Days Sales Outstanding (DSO) |
15 days |
60 |
The Percentage of Invoices Paid Late for this customer is 57%, which in the scoring model falls into the Moderate Risk range of 10% > 60%. The score assigned to this range is 50, the points earned are 50.
The weight assigned to this data point in the scoring model is 75%, or .75. The weighted points earned (points earned x weight) for the Percentage of Invoices Paid Late data point is 50 x .75 = 37.5.
The Days Sales Outstanding (DSO) for this customer is 15 days, which in the scoring model falls into the Moderate Risk range of 10 > 25 days. The score assigned to this range is 60, so the points earned are 60.
The weight assigned to this data point in the scoring model is 25%, or .25. The weighted points earned (points earned x weight) for the Days Sales Outstanding (DSO) data point is 60 x .25 = 15.
The credit score formula, as the sum of the weighted points earned expressed as a percentage is:
Credit score = points earned 1 x weight 1 (in percentage) + points earned 2 x weight 2 (in percentage) + ...In this case, points earned 1 = 50, weight 1 in percentage is 0.75; points earned 2 = 60, weight 2 in percentage is 0.25. So:
Credit score = 50x0.75 + 60x0.25 = 52.5 (out of 100)