What is a Credit Score?
A credit score is a number that signifies your credit information. This score is used by all financial institutions or individual lenders to assess the risk involved in giving you credit. The credit score is calculated on the base of the following. Address. Salary Your annual income. Credit Dept whether or not you had any credit depts. Bankruptcies whether or not you were claimed bankrupticy. Using the above factors an algorithm is decided and using this algorithm a credit score is generated. People with low credit scores are referred as high risk borrowers and people with high credit scores are referred as low risk borrowers. Banks and other lender set different interest rates for high and low risk borrowers. In general, a good credit score is somewhere in the range of 700-850, while an average score would be around 550-700 and anything below 500 is considered as a poor credit score.
A credit score is a number lenders use to help them decide: “If I give this person a loan or credit card, how likely is it I will get paid back on time?” Credit scores are also called risk scores because they help lenders predict the risk that you will not be able to repay the debt as agreed. Scores are generated by statistical models using elements from your credit report, however scores are not stored as part of your credit history. Rather, scores are generated at the time a lender requests your credit report and then included with the report. Credit scores are fluid numbers that change as the elements in your credit report change. For example, payment updates or a new account could cause scores to fluctuate. There are many different credit scores used in the financial service industry. Scores may be different from lender to lender (or from car loan to mortgage loan) depending on the type of credit scoring model that was used.
Look at your credit score as a report card of your credit history. Its a complex rating system used by lenders to determine if youre a good or bad credit risk. It compiles all your available financial data into a model that computes a score between 350 and 850the higher the score the better. Your score is based, among other things, on your payment history, credit usage, length of credit history and bankruptcies.
