Every now and again there’s a FINPACK tool available we, the FINPACK Team, suspect is underutilized. That may be because it doesn’t fit the bank’s analysis needs or maybe it’s because the tool is out of sight and out of mind (and if only given a chance, users would fall in love with it). We feel the latter may be true for Credit Decision Scorecards available in the Credit Analysis section of the FINPACK file navigator.
Much like Presentations and Risk Reports, in order to get started, you must have a model in place. There is a built-in model available with the FINPACK installation. Like all customizable tools in FINPACK, the built-in model can be utilized as is, or this can be adapted to better meet the needs of your credit policy. Additionally, a model can be created from scratch. Also, like all customizable components in FINPACK, you can have as many models as needed for scenarios you’d like to score.
Depending on the model you use, the principal(s) concerned, and the nature of the loan request, FINPACK Credit Decision Scorecards allows you to:
- Determine if an application meets minimum requirements so as to proceed to the next step of the process
- Determine if the applicant is so strong and the request carries so little risk, that the Scorecard will suffice and no greater credit scrutiny is required
Creating the Model
What you’ll notice about these scorecards is you have control, it can be as FINPACK hard-wired or free-hand as you wish to make it, meaning outside criteria can be entered and scored by the model. To start, yes or no questions qualify the credit. Here, “yes” is good, “no” is bad. When building the model, you’ll determine how many “no” answers (if any) are acceptable to still qualify the credit.
The second part of the model is to define custom criteria and the limits of each for qualification. Custom criteria will be values not directly from FINPACK, such as credit scores. Keep in mind, you might decide to use a scorecard as the first step or prequalification when initially evaluating a credit. Therefore, other FINPACK related data might not yet be available. The custom criteria allows you set some parameters without having a great deal of information already entered in the customer’s FINPACK file.
Lastly, the financial criteria and their qualifying limits are established in the model. These can come from FINPACK or user-entered. As an example, the FINPACK sample scorecard uses two custom defined criteria but has a third (Debt to Recurring Income) coming from a personal 1040 Tax Form already entered in FINPACK. Again, the qualification criteria and thresholds are determined by credit administration when the model is built. Additionally, exceptions are allowable in the model, if agreeable per your credit policy.
Once the model is built it can be used by all FINPACK users at your institution. This can be a streamlined process for approving small, straightforward borrower credit requests. Some banks are using this tool for consumer loan requests as an example. Or the scorecard may be used to pre-qualify a loan request, helping to get the credit analysis off to a good start.
Just like Presentations and Risk Reports, the FINPACK Tech Support Team is happy to assist you in the development of the Credit Decision Scorecard models for your institution.