Facts About Credit Scoring
Have you ever wondered why itís easier for some people to get credit or car loans from banks or credit companies while others seem to pass through a needleís eye just to have their loans successfully ...
Have you ever wondered why itís easier for some people to get credit or car loans from banks or credit companies while others seem to pass through a needleís eye just to have their loans successfully approved? Did you ever notice why some people pay lower interest rates than others and how paying your liabilities on time would make you a good prospect among lenders?
What makes you attractive to lenders such as credit card companies and banks is the product of credit scoring. It is the process of statistically evaluating a personís credit score based on their credit history, past business transactions, bills payment and other credit information from different credit agencies and bureaus. A credit score is the numerical analysis of an individualís creditworthiness or the likelihood that a person will pay their debts.
Credit scores are primarily utilized to keep track of potential economic risks associated with lending money to consumers to minimize losses due to unpaid arrears. These figures usually help the lender determine who qualifies for a loan, whatís the best interest rate to give them as well as their credit limits.
Credit scoring is not only monopolized by banks. Other companies and organizations also employ this useful strategy to establish financial feasibility and to guard their assets and standing. Some phone companies and government agencies use credit scoring to devise credit report and determine economic risks in trade in industry.
Almost in every country, credit scoring plays an important role in the major aspects of credit loaning and money laundering. Particularly, it is popularly practiced and developed in US, Canada and UK. In UK, it is used for academic research by banks and agencies and used as a tool by credit companies to ward off risky borrowers and clients. In the US and Canada on the other hand, credit score is based on the credit report from three credit bureaus for US (Experian, Transunion and Equifax) and two for Canada (Transunion and Equifax). The credit scores are used by many credit companies such as mortgage lenders to measure the possibility that a borrower may default or evade on their financial obligations.
A credit score is usually computed using a mathematical algorithm; the result is a number generally between 300 to 850. It is a measure of how risky a borrower you are and how likely you will be responsible enough to pay your debts. With a high score from 720 and above, you will get the most favorable interest rates on a mortgage or any other loan according to data from Fair Isaac Company, a California-based company that first developed credit score as well as the FICO score. According to them, more than seventy-five percent of mortgage lenders and about ninety percent of credit card companies utilize credit scoring to come up with their lending decisions.
As a truth, your credit score plays an essential part whether your credit will be extended by lenders or not. With a low credit score, your credit loan may be denied or you will be charged a higher interest rate whereas a high score is more favorable; it means that you will pose less risk to creditors.
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Find out more about credit scoring and how to improve your credit scores by visiting http://www.easycreditscoring.com.