Credit Score Pin

A borrower’s credit history provides all the information required by credit bureaus. These bureaus use this information to arrive at credit score and this score determines whether a particular borrower might receive credit or not. If the score is low then the chances of securing loan is dim. Hence, credit history plays an important role in securing loan. To improve credit history there are various steps.

1. Paying bills on time: Promptly paying bill before the due date of a loan amount will show that the borrower is sincere in making repayments. This in turn helps in securing future loan.

2. Reduce credit card balance: It is wiser to keep credit card balance at 25% or below credit card limit. This improves FICO score and helps in gaining loan faster.

3. Do not close old accounts: It is wiser not to close old credit accounts if they have good standing. If a borrower is regularly repaying his due amount on current loan and is seeking fresh loan, he need not close these accounts. This positive factor will result in good credit score and hence might lead to approval of new loan.
4. Pay bad debt instead of moving it around: To improve credit history, a borrower should pay his bad debt and not move it around or consolidate it. A borrow should avoid consolidating his credit balance from more credit cards on to one credit card. This may save some interest, but provide low credit score.
5. Avail credit only when required: A borrower should seek credit only if it is actually required and not for frivolous activities such as shopping or vacationing. Loan should be availed for contingencies as unpaid loan might result in poor credit history and mar chances of securing further loan.

A borrower’s credit history is very important document that is used to determine whether or not to provide loan. The information provided in credit history is used to calculate credit score. A credit score is a number used by a lender to determine the risk in providing loan, the rate of interest and other terms of the loan. If the credit score is low, then the borrower might not receive loan and even if the loan is approved, he might have to pay higher rate of interest.

Generally, a credit score has different categories with varied percentile. Payment history is awarded 35%, sum owed 30%, length of credit history 15%, type of credit that is in use 10% and new credit 10%. To improve credit history, these categories must be given attention.

Payment history that is major component (35%) should not be long and to improve credit score a borrower must make timely payment. Any payment due for more than 30 days will effect negatively as regard to credit history.
Total amount to be paid should be less as this is the second largest component of credit score. The outstanding amount owed should be minimum so as to improve credit score.

Length of credit history is an important factor in determining credit score. So, it is wiser to keep older accounts that are in good standing open. This is likely to improve credit history. A borrower needs to be careful while opening new credit account because a new credit account gives rise to more liability. This is reflected in credit history and a lender will be reluctant to provide loan. New account should be opened only if it is necessary.

A FICO score is a credit score model developed by Fair Isaac and Company. It developed this scoring model in 1950s and this score is widely used to ascertain credit worthiness of borrowers by various types of lender. FICO score is particularly used by mortgage loan providers.

Credit scoring is a mathematical and statistical analysis of ascertaining the likelihood of credit being paid. A credit score is a method of condensing a borrower’s credit history into a single number. Fair, Isaac & Co. and the credit bureaus are secretive about the method of computing these scores and The Federal Trade Commission has not opposed this stance.

Three different FICO scores are provided by three credit bureaus namely Experian, Equifax and TransUnion. Though most of the lenders use these three scores, some use middle scores. Middle score refers to exactly that, “MIDDLE”. Suppose Equifax provides FICO score of 700, Experian 730 and TransUnion 780, then middle FICO score will be 730.

The reason for different FICO score is due to the fact that these three credit bureaus use different set of information in a borrower’s credit history to arrive at FICO credit score. These bureaus might have different information about a borrower’s credit history at different times. This results in varied credit scores for the same borrower. This has led to what is called tri-merged credit report. Lending agencies or institutions demand merged credit report of a borrower from all the three bureaus. This helps them in arriving at a single credit history and hence a single FICO score that provides the most objective analysis of that particular borrower’s credit worthiness.

A credit score is a number, just like rating number, which is used by lenders to forecast the likelihood of receiving repayment of loan. It is based on information and variables associated with a borrower’s credit history. Credit scores are of two types viz. custom score and generic score. Generic credit scores are used by institutional lenders like bank, credit rating agencies, corporate financing institutions etc. Custom scores are utilized by individual lenders who depend on credit reports and account history.

VantageScore, which is a credit score developed by few national credit reporting companies and Experian, was the first to use generic credit score. Other scores are Fair Isaac Corporation (FICO) which is widely used in the mortgage industry, NextGen and CE Score. Besides Experian other credit bureaus are Equifax and TransUnion. These bureaus provide information that goes into credit history of a borrower along with providing models for credit scores.

Most of the scores make use of a multiple-scorecard design. Different versions use individual scorecards. A type of borrower is compared with similar type of consumers. For example, a borrower with three 60-day late payments is compared against a group of similar delinquent paying population. The borrower is then graded according to variable that determine the risk and then he is ranked within the group of similar borrowers.

Which ever credit score model is adopted, it is subject to federal regulation known as Federal Reserve Board’s Regulation B (implementing the Equal Credit Opportunity Act). This regulation does not allow scoring model that has bias and is considered as restrictive based on religion, race, nationality, marital status and sex. It is also mandatory for a lender to provide valid reasons for rejecting credit to a borrower.

Credit score is numerical measurement of a person’s credit history and it helps in determining his loan repaying ability. It is widely used by lending agencies to provide loan to different types of borrowers. So, it is pertinent that a borrower has good credit score. As credit score is derived from elements and information in a person’s credit history or report, it is important that to achieve good credit score, a person should have good and healthy credit history.

As credit score takes into account variables in credit history of a person, the various factors that can improve a borrower’s credit score are as follows:

1. Timely payment of bills. Delay in payment can result in bad credit score.
2. Low credit card balance helps improve credit score where as high outstanding amount can effect negatively.
3. Avoid opening multiple credit accounts. Do that only if necessary.
4. Payment of debt is better than moving it around or seeking debt consolidation.

You should review your credit report on a regular basis in order to ascertain the facts. If you have a bad or negative credit score, it takes considerable time to rebuild it. The fact is that scores are not rebuilt, but there is need to rebuild credit history as that is what is reflected in your credit score. The duration to rebuild credit history depends on duration of the negative element in it. Generally, delinquency remains on credit history of at least seven years and public record items from 7-10 years. Thus, based on this, you must strive to rebuild your credit history which in turn will help you regain positive credit score.

Credit score is a tool that helps a lender in assessing the risk associated with a loan. Using this tool, a lender is able to analyze a risk more objectively and consistently. Before advent of credit score, a lender used to take lending decision based on his experience and judgment. The human element in this type of judgment used to result in biased decision and as personal opinion was involved, the borrower’s ability to repay a loan was not correctly judged. This lacuna was eliminated with the usage of credit score in making judgment regarding repaying capacity of a borrower.

As various statistical and numerical analyses are done so as to arrive at credit score, the judgment is objective and free from human error or bias. The score is arrived at taking into account factual credit history of a borrower and low credit score, though might make seeking credit difficult, does not make it impossible. A person might have low credit score, but change in one or other element in his credit history can make him eligible for credit though with high interest rate.

It is important to note that though there are several factors that effect credit score, they do not prevent a person from obtaining credit. Credit score is just a numerical analysis of credit history and is just like rating on 1-10 scale. A lending agency might still provide credit to a person with bad credit history though, to cover the risk associated with this credit, might charge more interest than usual. This feature gives credit score objectivity and practicality. It presents true and fair picture of a person’s credit worthiness and this helps lenders decide on whether to provide credit or not and if yes, how much.

In commercial and business world, it is impossible to sustain without obtaining finance through debt. Since early days when barter system gave way for currency-based trading, the need for loan or credit was always present. In today’s world of complicated business models and competitive business strategies, obtaining credit for your business endeavor has become a necessity.

But obtaining credit is not easy for everyone as all types of lending institutions, from banks to investment companies and individual money lenders, use sophisticated tools to assess repaying capacity of borrower. Credit score is one such tool that helps all types of lenders in ascertaining how risky a loan is and what is the possibility of that loan being paid. Credit score is numerical measurement of a borrower’s repaying capacity based on statistical analysis of his credit history or report.

Credit score models are developed after reviewing a set of consumers that number more than a million. The history of credit of these consumers is examined and analyzed with an objective to arrive at common variables that they exhibit. Statistical models are then developed on basis of those credit variables that predict future behavior the most. Each of these variables is assigned appropriate weights.

Different credit score models consider different consumer statistics for specific types of loan. For example, models for mortgage or auto loan take into account consumer payment statistics that are related specifically to these types of loans. Whatever the model, the idea is identification of the best set of variables based on a consumer’s past credit history that helps in predicting future credit behavior effectively.

A credit score is a number used by a lending institution which helps in deciding whether a borrower will be a good risk to take for offering credit. This score comes handy while offering auto loans, credit card loans as well as mortgage loans. Availing a loan becomes easy if the borrower’s credit score is good and it is derived after detailed analysis of a borrower’s credit history.

Credit history consists of records regarding all the transactions done by a borrowers like payment history of loans, regularity of payment, outstanding amount against any debt, loans not repaid etc. This provides good insight into repaying ability of a borrower. Credit history or report is prepared based on feedback and information provided by credit bureaus. In US, though there are many credit bureaus that provide information required to prepare credit report, three are prominent and they are Experian, TransUnion and Equifax.

As credit score is calculated based on information provided by credit bureaus, all the credit scores are not the same. A borrower might have different credit scores if service of more than one bureau is availed. Nevertheless, it is immensely popular form of tool in the hands of lenders that help in assessing creditworthiness of a borrower. The reason for its popularity is that it is non-discriminatory. Credit score does not take into account information regarding race, caste, creed, sex, age, area of residence, etc. This makes it the most objective method of analyzing creditworthiness. So, even though different credit bureaus provide different credit score, it still remains the most widely used instrument to gauge creditworthiness of a borrower.

There are several occasions when a person requires credit. But to get finance from any lender, whether bank, financial institutions or individual moneylenders, sound credit history is a must. Credit history or report gives details about repaying capacity of the borrower. For simplification, the entire credit report is summarized in numerical terms know as credit score. Credit score is a number derived after statistically analyzing borrower’s credit report. This score helps in determining the likelihood of repayment of debt by a borrower.

Information that is provided in the credit report, and is the basis of credit score, is sourced from various credit bureaus like Experian, Equifax and TransUnion. Thus, all credit scores are not similar due to the fact that different bureaus use different yardstick to assess information and arrive at credit score.

Credit score has been a viable underwriting mechanism for more than 35 years now and it provides banks, credit card companies and other lending institutions an effective tool to evaluate and determine the potential risk associated with lending money to a particular borrower. As it does not discriminate between various types of borrowers, credit score is the most objective tool to be used by lenders.

Though there are many credit scores used by lenders in US, the credit score that is frequently used is FICO (Fair Isaac Corporation). Mortgage industry uses this score. Other credit scores are those provided by VantageScore, which is used by three major credit bureaus viz, Experian, Equifax, and TransUnion, CE Score and NextGen. .

Homeowners sometimes prefer not to use traditional loan for re-finance. Instead they prefer home equity credit. Well there are several pros and cons of following this method. Before discussing these, its better to explain in brief what exactly is home equity line of credit.

Home equity line of credit is also abbreviated as HELOC. It’s essentially a credit which is available to homeowner based on equity of the house. An assured part of the amount is made available to homeowner to be used. Homeowner can make these withdrawals during specified time, mostly referred as draw period. It becomes responsibility of homeowner to repay the amount which he/she withdrew during the repayment period.