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Credit
Score
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What
is a Credit Score?
Credit
Scores (also
known as risk scores)
assess an individual's credit worthiness. They are
calculated by comparing your current credit history
and current credit accounts to statistical models.
Quick analysis is made and a score is issued. This
score is then used as a risk indicator by credit
grantors to determine whether or not to offer you
credit.
The credit score is based on a model derived from
analysis of past credit history of thousands of
people. Based on the collective "credit
history" of thousands of people with financial
profile similar to yours, the credit score tries to
estimate your future behavior in respect to repayment
of your loans, making timely payments, etc.
Within
the last year or two, creditors have become
increasingly dependent upon credit scoring. Credit
scores (also known as risk scores) are a numerical
interpretation of your credit profile. The score
predicts how likely consumers in a specific score
range will repay their debts.
Credit
scoring has been utilized by lenders for over 30
years. Credit scoring is a technology used by credit
grantors to qualify the risk associated with extending
credit to a given borrower.
There
are many types of scoring methods currently utilized
today including credit scoring, applicant scoring,
behavioral scoring and several others. The type most
relevant to the mortgage industry is credit scoring
and among the most widely recognized is the FICO
SCORE.
The Fair Isaac company (a company located in San
Rafael, California) is the developer of the models for
the credit bureaus and they have become commonly
known as FICO SCORES.
Most
people know that most creditors use credit report
agencies for obtaining information on a person when
they have applied for any type of financing. . There
are three major companies that collect your credit
information and provide your credit report (also known
as credit profile) to your lenders/creditors. They are
Equifax, Experian and TransUnion. When someone
obtains credit, the creditor reports the payment
history to these companies. These
companies simply accept the information as it comes in
electronically and they do not check the accuracy of
the information.
The credit companies and other agencies also
maintain other background information on every person
in the country who has a Social Security number or
other identifying information. A
credit score, commonly known as FICO scores, are used
by creditors to determine how good a credit risk you
are. It has predictive value for telling the lender
how likely you are to repay a loan or to make payments
on time.
Your score only looks at information in your credit
report. Lenders look at many things when making a
credit decision, including your income and the kind of
credit you are applying for. However, your FICO score
does not reflect these facts, as it only evaluates
your credit report at the credit reporting agency.
Your score considers both positive and negative
information in your credit report. Late payments will
lower your score, but having a good record of making
payments on time will raise your score.
Your score does not consider your ethnic group,
religion, gender, marital status and nationality.
These are, in fact, prohibited from use in scoring by
US law.
: Upon
what information is a credit score based
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