Credit Risk Models

Credit risk models are tools used by financial institutions to assess the likelihood that a borrower may default on a loan or credit agreement. They analyze various data such as credit history, income, and economic conditions to predict potential repayment issues. By doing so, lenders can make informed decisions about whether to approve a loan, set interest rates, or determine collateral requirements. These models help manage risk, ensuring that lenders lend responsibly while offering fair terms to borrowers. They are essential for maintaining financial stability and balancing risk and opportunity in lending activities.