What does Algorithm mean?
An algorithm is a step by step procedure designed to perform an operation, and which (like a map or flowchart) will lead to the sought result if followed correctly. Every algorithm has a definite beginning and a definite end, and a finite number of steps, in which relevant data is rigorously analyzed. Two identical algorithms produce the same output if the same input information is given, and several short algorithms can be combined to perform complex tasks such as writing a computer program. A problem solving routine, a diagnosis, a cookbook recipe, are some common examples of simple algorithms. Although they are suitable for structured problems (amenable to sequential analysis), algorithms are not usable for problems where value judgments are required.
When it comes to credit scoring, they are a complex set of precise calculations which analyze a business’ or a person’s past behavior concerning credit, in order to determine what level of risk the business or person carries for upcoming loans.