Survival analysis in credit scoring

Abstract

In the domain of credit risk assessment, innovative approaches have emerged to address the challenge of predicting loan default probabilities. This article explores Survival Analysis, a statistical method capable of predicting the timing of loan repayments and distinguishing between completed repayments and unpaid loans, treating them as censored events. By integrating Survival Analysis, financial institutions can enhance their ability to forecast repayment timelines, minimize losses from non-performing loans, optimize cash flow management, refine credit collection strategies. The primary goal of this article is to investigate the utility of survival models in estimating Probability of Default (PD) and developing credit scorecards.