Digital finance companies such as online lenders also use alternative data sources to calculate the creditworthiness of borrowers.
[3][4] In Australia, credit scoring is widely accepted as the primary method of assessing creditworthiness.
Although logistic (or non-linear) probability modelling is still the most popular means by which to develop scorecards, various other methods offer powerful alternatives, including MARS, CART, CHAID, and random forests.
Consumers who did not pay bills end up on the blacklists that are held by different credit bureaus.
[7] Consumers also have the right to receive a free copy of all data held by credit bureaus once a year.
Previously, credit reporting was done as a blacklist and each lender used to assess potential borrowers on their own criteria.
Nowadays, the system of credit reports and scores in Brazil is very similar to that in the United States.
It is the most important tool used by financial institutions during a credit analysis that aims to assist the decision-making process of granting credit and conducting business, in order to verify the likelihood that people will pay their bills.
In general, scores range from 0 to 1000 indicating what is the chance of a certain profile of consumers paying their bills on time in the next 12 months.
The score is calculated from several factors, but practically it analyzes a person's trajectory as a consumer, what includes up to date payments of bills, history of negative debts, financial relationships with companies and updated personal data on credit protection agencies, such as Serasa Experian, Boa Vista, SPC, Quod and Foregon.
One is that, unlike in the United States, where a consumer is allowed only one free copy of their credit report a year, in Canada, the consumer may order a free copy of their credit report any number of times in a year, as long as the request is made in writing, and as long as the consumer asks for a printed copy to be delivered by mail.
The Government of Canada offers a free publication called Understanding Your Credit Report.
It also contains general information on how to build or improve credit history, and how to check for signs that identity theft has occurred.
The credit scoring is widely used in Denmark by the banks and a number of private companies within telco and others.
[citation needed] In Germany, credit scoring is widely accepted as the primary method of assessing creditworthiness.
Consumers have the right to receive a free copy of all data held by credit bureaus once a year.
Credit scoring is based on publicly available information such as demographic data, tax returns, taxable income and any Betalingsanmerkning (non-payment records) that might be registered on the credit-scored individual.
[citation needed] In the Republic of Ireland, a person's credit score is calculated by the Irish Credit Bureau (ICB), a private organisation, financed by its members (financial institutions and local authorities).
Experian South Africa likewise has a Delphi credit score with their fourth generation about to be released (late 2010).
In 2011, Compuscan released Compuscore ABC, a scoring suite which predicts the probability of customer default throughout the credit life cycle.
Six years later, Compuscan introduced Compuscore PSY, a 3-digit psychometric-based credit bureau score used by lenders to make informed lending decisions on thin files or marginal declines.
[24] Sweden has a system for credit scoring that aims to find people with a history of neglect to pay bills or, most commonly, taxes.
As an example, Swedish astronaut Christer Fuglesang got a Betalningsanmärkning since a car he had ordered, and therefore owned, passed a toll station for the Stockholm congestion tax.
At the time, he was living in the USA training for his first Space Shuttle mission and had an old invalid address registered for the car.
Each lender will assess potential borrowers on their own criteria, and these algorithms are effectively trade secrets.
[citation needed] The most popular statistical technique used is logistic regression to predict a binary outcome: bad debt (meaning the borrower has defaulted on the loan) or not.
[29] Some banks also build regression models that predict the amount of bad debt a customer may incur.
Consumers can also send complaints to the Financial Ombudsman Service if they experience problems with any Credit Reference Agency.
In addition, many large lenders, including the major credit card issuers, have developed their own proprietary scoring models.
Until March 2009, holders of credit cards issued by Washington Mutual were offered a free FICO score each month through the bank's Web site.