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Question Regarding Credit Risk Modelling ?

Question Regarding Credit Risk Modelling ?

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Why have not we considered “Late (16-30 days)” as Bad loan when we are considering Late (31-120 days) as bad loan in the Dependent variable: Good/ Bad (default) definition video ?

1 Answer

365 Team
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Hi there,
Usually, if someone is late with less than 30 days for their loan this is not always a ‘bad’ loan. While they are late, that’s when the bank makes the most money on the interest 🙂 So a bank wants you to be late, but doesn’t want you to be ‘too late’. 
Moreover, you may not have enough money this month, but then you get your salary next month and pay the installment on your loan. So a 30-day period is completely normal to be considered ‘still salvageable’.
Best,
Iliya