How banks rate their customers: scoring strategies

Credit assessment is a central component of lending. But why do different approaches to scoring lead to different results for customers at different banks? In this article, we take a detailed look at the strategies banks use to assess their customers.

Different business strategies in scoring

Risk tolerance of the institutions

Not all banks have the same risk tolerance. While some institutions deliberately accept customers with lower scores in order to charge higher interest rates and compensate for risks, others favour a conservative strategy. The latter only work with customers who have an excellent credit rating in order to minimise the risk of payment defaults.

A bank's risk appetite is determined by its strategic objectives. More aggressive banks aim to maximise profits through riskier transactions, while risk-averse banks prioritise stability and long-term security.

Target group-orientated approaches

Another decisive factor is the target group strategy. Some banks specifically target the self-employed, young adults or people with lower incomes. These groups often require customised valuation models as they have different financial profiles.

• Young adultsWithout an extensive credit history, alternative criteria such as level of education or potential income could play a role.
• Self-employedValuation is often based on sales or business forecasts.

Customised valuation models

Different weighting of the criteria

Each bank develops its own assessment models. While some banks prioritise a customer's income, others place greater emphasis on the history of timely loan repayments. Such differences explain why the same customer receives different scoring values from different banks.

Use of modern algorithms

Technological progress has revolutionised credit ratings. Banks are increasingly using AI-supported algorithms that take into account a large number of variables and thus enable a more precise and faster assessment.

Consideration of internal data

Some banks draw on internal data sources, such as the behaviour of existing customers. Regular credit card repayments or high balances in savings accounts can have a positive effect on the credit rating.

Legal room for manoeuvre

Requirements of the Consumer Credit Act (KKG)

The Swiss Consumer Credit Act (KKG) obliges banks to check a customer's creditworthiness. At the same time, it offers room for individual interpretation.

• PortabilityBanks calculate differently whether a customer can afford a loan. Some follow standardised approaches, others rely on flexible methods.
• Hypothetical interest rateThe KKG stipulates an interest rate of 10 % for the calculation of affordability, but banks interpret this differently.

Data sources and their quality

Utilisation of ZEK and IKO data

Most banks use data from central credit agencies such as ZEK (Zentralstelle für Kreditinformationen) and IKO (Informationsstelle für Konsumkredite). Although the basic data is identical, banks evaluate this information differently.

• An institution could prioritise the frequency of loan applications.
• Another could focus on existing loan agreements.

Alternative data sources

As technology advances, some banks are utilising alternative data sources:

• Credit card utilisationFrequency and type of transactions provide insight into spending behaviour.
• Mobile transactionsPayments via smartphones provide additional data points.
• Online activities: Purchasing behaviour on e-commerce platforms could be included in the evaluation.

However, traditional banks often favour traditional methods.

Customer loyalty and competition

Aggressive marketing strategies

In highly competitive markets, some banks deliberately accept customers with low credit ratings in order to gain market share. This strategy is compensated for by higher interest rates or shorter terms.

Incentives for existing customers

Existing customers with a positive history often benefit from better conditions. The aim is to strengthen customer loyalty and expand the relationship with the bank.

Economic and regional factors

Regional differences

In rural areas with lower incomes, banks adjust their scoring models, while in urban regions the higher cost of living plays a role.

Influence of the market situation

Economic uncertainties, such as during a recession, lead to stricter creditworthiness requirements. In growth phases, on the other hand, banks relax their criteria in order to meet the increased demand for loans.

Conclusion

Credit rating is a complex process that is influenced by various factors such as business strategies, legal requirements and technological developments. Borrowers should understand these differences and compare offers from different banks to find the best terms.

Frequently Asked Questions (FAQs)

1 Why do credit ratings differ between banks? Different valuation models, target groups and risk strategies lead to different results. Each bank sets its own weightings and priorities.

2 What role does alternative data play in the credit check? Alternative data such as mobile transactions or online activities offer additional insights into financial behaviour, but are not used by all banks.

3. how does the Consumer Credit Act (KKG) influence the credit check? The KKG stipulates a credit check, but leaves room for manoeuvre in its implementation, for example in the calculation of affordability.

4. can customers improve their credit rating? Yes, by making regular payments, reducing debt and using credit sparingly, customers can improve their credit rating in the long term.

5 Which banks accept customers with a low scoring? These are often banks with more aggressive growth strategies that deliberately accept customers with low credit ratings but charge higher interest rates.

6. are there regional differences in credit ratings? Yes, banks often adapt their models to regional characteristics and typical customer profiles.