One of the major premises used in credit scoring is that “the future is like the past”. It’s usually a rational assumption and gives us a reasonable platform on which to build scorecards whether they be application scorecards, behavioural scores, collection scores or financial models.  That is reasonable until something unprecedented comes along.  You can read about this black swan event in our previous two blogs here and here

This is the second of a 2-part blog. You can read the first blog here.

One of the basic principles of credit scoring and modelling is that the “future is like the past”.  Whilst robust credit models may be calibrated on multiple time periods, this assumes that trends in the past represent what is going on today.  COVID-19 is a black swan event – meaning in the modern day it really is unprecedented.  If you have never come across the term black swan, or if you have but no idea the origin, I recommend taking two minutes to read its really interesting etymology.