International Oil Company (IOC) uses credit scoring to evaluate gasoline credit card applications. The following table presents
Question:
International Oil Company (IOC) uses credit scoring to evaluate gasoline credit card applications. The following table presents the financial and credit characteristics considered and weights (indicating the relative importance of each characteristic) used in the credit decision. The firm’s credit standards are to accept all applicants with credit scores of 80 or higher, to extend limited credit on a probationary basis to applicants with scores higher than 70 and lower than 80, and to reject all applicants with scores below 70.
Financial and Predetermined
Credit CharacteristicsWeight
Credit references ...........25
Education .............10
Home ownership ...........10
Income range ...........15
Payment history ............30
Years on job ...........10
The firm needs to process three applications that were recently received and scored by one of its credit analysts. The scores for each of the applicants on each of the financial and credit characteristics are summarized in the following table.
a. Use the data presented to find the credit score for each of the applicants.
b. Recommend the appropriate action that the firm should take for each of the three applicants.
Step by Step Answer:
Introduction to Corporate Finance What Companies Do
ISBN: 978-1111222284
3rd edition
Authors: John Graham, Scott Smart