Practice Test Geeks(CCM) Certified Credit Manager Practice Test
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Data Analysis & Decision Making Flashcards

7 cards from real CCM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 Data Analysis & Decision Making flashcards as text

  1. A credit manager must decide whether to extend credit to a borderline applicant. Using expected value analysis, if approval yields $12,000 profit with 70% probability and a $4,000 loss with 30% probability, what is the expected value?

    Answer: $7,200

    Expected value = (0.70 × $12,000) + (0.30 × −$4,000) = $8,400 − $1,200 = $7,200.

  2. Which of the following best describes a Type II error in the context of credit decisioning?

    Answer: Denying credit to a customer who would have paid

    A Type II error (false negative) in credit decisioning means rejecting a creditworthy applicant — a missed business opportunity.

  3. A company has the following data: total credit sales = $2M, beginning AR = $180K, ending AR = $220K. What is the average collection period?

    Answer: 36.5 days

    Average AR = ($180K + $220K) / 2 = $200K; ACP = ($200K / $2M) × 365 = 36.5 days.

  4. When a credit manager applies sensitivity analysis to a credit risk model, the primary goal is to:

    Answer: Identify which input variables have the greatest impact on the credit decision outcome

    Sensitivity analysis tests how changes in individual inputs affect model outputs, revealing which variables drive decisions most significantly.

  5. A credit department's portfolio loss rate is 2.1% against an industry average of 1.4%. After controlling for customer mix and economic conditions, the excess loss is most likely attributable to:

    Answer: Favorable credit terms offered to high-risk segments

    After controlling for external factors, excess losses above industry benchmarks typically reflect looser credit standards or extending credit to higher-risk customers.

  6. Which of the following is a key limitation of using historical payment data alone to predict future credit risk?

    Answer: Past payment behavior may not account for structural changes in a customer's business or economic environment

    Historical data reflects past conditions; major events like management changes, market disruptions, or economic shifts can render historical patterns unreliable.

  7. A credit analyst plots a ROC curve for two competing credit scoring models. Model A has an AUC of 0.78 and Model B has an AUC of 0.91. What conclusion is most appropriate?

    Answer: Model B is preferred because a higher AUC indicates better discrimination between good and bad credit risks

    A higher AUC (Area Under the Curve) indicates better ability to discriminate between creditworthy and non-creditworthy applicants across all thresholds.