What Are the Odds?

An adjunct to the likelihood table is the concept of risk rating or score—the risk scorecard. A scorecard is a set of information that allows you to attach a numerical score to a risk. The scorecard is usually built using statistical techniques that link information about a risk to the probability of a loss. In the case of credit, it might be information about someone’s credit history, education, profession, employment status, and salary. There may be other factors that provide an indication of the borrower’s creditworthiness and therefore their probability of default on a loan. This is how credit scores are derived, for example.
Scorecards are assembled in a number of contexts to achieve a more accurate view of the probability ...

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