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/algo-risk-credit

\"Build credit scoring models to predict default probability from borrower characteristics. Use this skill when the user needs to assess creditworthiness, build a credit scorecard, or evaluate lending risk — even if they say 'predict default risk', 'credit scoring', or 'loan

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awesome-agent-skill
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Install
$ npx -y skills add charlieviettq/awesome-agent-skill --skill algo-risk-credit --agent claude-code

How it fires

How this skill gets triggered: by you, by Claude, or both.

  • Fires itselfAuto-invocation. Claude auto-loads it when your prompt matches the work.Auto-invocation is when the right skill fires by itself at the right moment, driven by a FLOW.md router and a hook, instead of you invoking it by name. It is the difference between a skill being installed and a skill actually getting used.Read the full definition →
  • You can call itInvoke it directly when you want it.
  • Slash command/algo-risk-credit

Context preview

The summary Claude sees to decide when to auto-load this skill.

\"Build credit scoring models to predict default probability from borrower characteristics. Use this skill when the user needs to assess creditworthiness, build a credit scorecard, or evaluate lending risk — even if they say 'predict default risk', 'credit scoring', or 'loan

SKILL.md

algo-risk-credit.SKILL.md
name: "\"algo-risk-credit\""
description: "\"Build credit scoring models to predict default probability from borrower characteristics. Use this skill when the user needs to assess creditworthiness, build a credit scorecard, or evaluate lending risk — even if they say 'predict default risk', 'credit scoring', or 'loan approval model'.\"."
allowed-tools: Read, Glob, Grep

Credit Scoring Model

Overview

Credit scoring models predict the probability of default (PD) from borrower characteristics using logistic regression or gradient boosting. Output: a score (300-850 range) or PD (0-1). Used for loan approval, pricing, and portfolio risk management.

When to Use

**Trigger conditions:**

  • Building a scorecard for loan/credit approval decisions
  • Predicting default probability for risk-based pricing
  • Evaluating existing credit models for discriminatory power

**When NOT to use:**

  • For corporate bankruptcy prediction (use Altman Z-Score)
  • For market risk measurement (use VaR)

Algorithm

IRON LAW: A Credit Model Must Discriminate AND Be Calibrated
Discrimination (AUC): correctly ranking good vs bad borrowers.
Calibration: predicted PD matches actual default rates.
A model with AUC=0.85 but predicted PD 2x actual default rate will
cause systematic over/under-pricing. Need BOTH properties.

Phase 1: Input Validation

Collect: borrower features (income, debt ratio, credit history length, delinquency count, utilization), outcome variable (default within 12-24 months). Handle: missing values, class imbalance (typically 2-5% default rate). **Gate:** Sufficient defaults (300+ events), features available at decision time.

Phase 2: Core Algorithm

1. Feature engineering: WOE (Weight of Evidence) binning for logistic regression, or direct encoding for GBDT 2. Train model: logistic regression (interpretable, regulatory-preferred) or GBDT (higher accuracy) 3. Calibrate: Platt scaling on holdout, ensure predicted PD matches actual default rate by decile 4. Convert to score: Score = offset + factor × log(odds), scaled to 300-850 range

Phase 3: Verification

Evaluate: AUC (>0.70 acceptable, >0.80 good), KS statistic, Gini coefficient. Population stability index (PSI) for monitoring drift. **Gate:** AUC > 0.70, calibration acceptable, no discriminatory bias in protected attributes.

Phase 4: Output

Return score, PD, and key risk drivers.

Output Format

{
  "score": 680,
  "pd": 0.035,
  "risk_grade": "B",
  "top_risk_factors": [{"factor": "high_utilization", "impact": -45}, {"factor": "short_history", "impact": -30}],
  "metadata": {"model": "logistic_regression", "auc": 0.78, "vintage": "2024-Q3"}
}

Examples

Sample I/O

**Input:** Borrower: income=$60K, DTI=35%, 5yr credit history, 0 delinquencies, 60% utilization **Expected:** Score ~680, PD ~3.5%, Grade B (some risk from high utilization)

Edge Cases

| Input | Expected | Why | |-------|----------|-----| | No credit history (thin file) | High uncertainty, default to conservative | Insufficient data for scoring | | All features identical | Same score regardless of outcome | Model can't differentiate — need more features | | Major economy shift | PSI > 0.25, model needs recalibration | Population has shifted from training distribution |

Gotchas

  • **Reject inference**: Training data only includes approved applicants. Rejected applicants' outcomes are unknown, creating selection bias. Use reject inference techniques.
  • **Fair lending**: Models must not discriminate by protected attributes (race, gender, age). Even proxy variables (zip code ≈ race) can create disparate impact. Test with fairness metrics.
  • **Through-the-door vs on-the-books**: TTD samples include all applicants; OTB only approved ones. Model purpose determines which sample to use.
  • **Vintage analysis**: Default rates vary by economic conditions. A 2019-trained model may not predict well in a recession. Track model performance by vintage.
  • **Regulatory requirements**: Financial regulators (Basel, OCC, FDIC) have specific requirements for model validation, documentation, and fair lending testing.

References

  • For WOE binning methodology, see `references/woe-binning.md`
  • For reject inference techniques, see `references/reject-inference.md`
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