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Credit scoring and its applications (2nd ed.)
Thomas L., Crook J., Edelman D., SIAM-Society for Industrial and Applied Mathematics, Philadelphia, PA, 2017. 387 pp.  Type: Book (978-1-611974-55-3)
Date Reviewed: Jun 21 2018

Anyone involved in credit scoring, from financial professionals to advanced students in mathematics and business, should own this treatise. Heavily mathematical in its approach, it addresses the practical mechanics of contemporary credit analysis and credit scorecards, among numerous topics. It incorporates regulatory and economic events that have occurred since the publication of the first edition, in 2002 [1].

In approximately 340 pages of text, divided into 13 chapters, the authors proceed from the history and practice of credit scoring, to building and managing credit scorecards. Behavioral scorecards, economic issues, and the Basel Accords are addressed. The Basel Accords are recommendations for the regulation of banking. One chapter is devoted to securitization and the subprime crisis, and the final chapter addresses variable pricing and risk-based pricing.

The overall orientation is financial, not legal or public policy oriented, although some nation-specific views of bankruptcy, equal opportunity, and privacy are mentioned. Familiar financial and economic mathematics dominate the text.

It is worth recalling that the older generation of credit analysts adopted seat-of-the-pants assessments of creditworthiness, with the classic three Cs--character, collateral, and capacity--dominating. Only in comparatively recent times--historically speaking, the past 40 to 50 years--has credit worthiness become a science. If you find your thinking stuck in the older mindset, this publication will rapidly bring you up to date.

There is a bibliography and index, but no definitive separate student exercises or case histories. The authors note that they do not address peer-to-peer lending and crowdfunding. Nevertheless, the authors provide an excellent presentation of an important topic.

Reviewer:  Brad Reid Review #: CR146098 (1809-0492)
1) Van Speybroeck, J. Review of Credit scoring and its applications, by L. C. Thomas, D. B. Edelman, and J. N. Crook. Computing Reviews (Jan. 28, 2003), CR Rev. No. 126892 (0304-0346).
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