An update to Square’s credit risk model for its Square Capital commercial lending product — first disclosed yesterday — was “a key driver of Capital’s outperformance in the fourth quarter,” the company said.

The advancement of Capital is key for Square as it continues to grow the fast-growing — and lucrative — lending product. Last quarter, Square originated $671 million of loans, a 42% year-over-year growth rate. Originations totaled $2.8 billion last year.

The company said during its earnings call yesterday it has updated its Capital credit risk model “to capture what we would call additional signals, which help us better optimize various loan attributes.” Those signals improve Square’s ability to monitor a borrower’s ability to repay and the likelihood of fraudulent activity, which, in turn, enhanced Square’s assessment of creditworthiness.

Square said the changes to the model influenced term length or repayment amount for borrowers, mainly small businesses.

In the fine print of its fourth-quarter earnings, Square disclosed that Capital loans “are typically less than 15% of a seller’s annual [gross payment volume] and … sellers repay their loan within an average of eight to nine months.” That loan-to-GPV ratio is relatively low, yet its loss rate is “historically … less than 4%.”

Meanwhile, Square, which sells its Capital credits, recently signed up the Canada Pension Plan Investment Board; Credigy, a subsidiary of National Bank of Canada; and a fund managed by Morgan Stanley Investment Management to its roster of loan investors.

Square [ticker: SQ] has a current market capitalization of nearly $33 billion.