Credit Granting Decisions

Abstract

In an ideal world, every borrower would repay their debts on time and lenders would earn a living from the interest and other income earned over the lifetime of the relationship. In the real world however, there is an inherent risk that a borrower will not repay the credit advanced to them. This could be for any one of a number of reasons, ranging from poor financial management or loss of employment, to family breakdown or death. A credit business will only be profitable if the return from those that repay their debts exceeds the losses where default has occurred. Therefore, when someone applies for credit, a lender needs to be able evaluate their creditworthiness, and only lend to them if there is a good chance that they will repay the loan.