Sophisticated computer programs have enabled creditors to quickly assess a borrower's creditworthiness by processing key data through complex statistical formulas and assigning numerical credit scores. This process has brought benefits to lenders, consumers, and regulators alike. For lenders, credit scoring decreases expenses associated with the time and expertise required to make a credit decision, enabling lenders to increase loans and reduce credit costs simultaneously. Since the evaluation criteria are standardized, these loans can be packaged and sold more easily in secondary markets, reducing an institution's interest rate risk, improving its liquidity, and further increasing its capacity to originate loans. Consumers obtain much quicker responses to loan requests, and they may be more likely to receive credit since computer models are much more objective than loan officers.
Regulators also benefit from credit scoring.
The predictive nature of the statistically based models mitigates risk and promotes safety and soundness. Uniformly applying underwriting criteria also promotes fair lending by curtailing the influence of personal biases on credit decisions. The Internet has played a significant role in shaping the new economy by enabling firms to communicate and conduct commerce on a global basis regardless of their location or asset size. The banking industry is using the Internet to expand customer bases, increase service, and reduce operating costs. For community groups, the Internet has provided a cost-effective medium for tapping into a multitude of resources, both financial and informational, to fund new programs, identify best practices, and recruit new partners.