When you start using scoring in small business credit origination, you need to know which score cutoffs to use to automate decisions. Performing a model validation proves exactly where cutoffs should be set on your account population to approve or decline applicants. This process is a basic best practice. It proves that the small business scorecard, a model developed from pooled or other data, is working properly on your own production data from new credit applications or when you move to a different score and score version. Do booked applicants who received high scores actually have low levels of serious delinquency? And vice versa? Does the performance of applicants with mid-range scores show moderate risk? Validation answers these questions and demonstrates that scoring is helping you make objective, fair, consistent credit decisions.
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