{"id":242301,"date":"2020-06-02T14:14:25","date_gmt":"2020-06-02T14:14:25","guid":{"rendered":"https:\/\/imarticus.org\/?p=242301"},"modified":"2021-02-26T13:55:55","modified_gmt":"2021-02-26T13:55:55","slug":"what-is-credit-risk-modelling","status":"publish","type":"post","link":"https:\/\/imarticus.org\/blog\/what-is-credit-risk-modelling\/","title":{"rendered":"What is Credit Risk Modelling?"},"content":{"rendered":"

Credit risk modelling is a financial concept where models are created to calculate the chances of a borrower defaulting on his credit repayment. An example is an individual who has taken a credit card in his name; the risk model will speculate if and how he will default on the monthly card payments. And if he does, the total amount that he owes and the total loss to the lender is also calculated.<\/p>\n

The use of this type of models that are created using historical data to gauge the probability of a credit default is known as credit risk modelling.<\/a> It is an important resource for banks and financial institutions to check the credit holding capacity of individuals and businesses. The goal is to prevent losses.<\/p>\n

How Does Credit Risk Modelling Define Borrowers?<\/strong><\/p>\n

A risk model essentially divides customers (borrowers) into two types:<\/p>\n

Bad borrower<\/strong><\/p>\n