What is Credit Score
By forlan, 2nd Feb 2012 | Follow this author
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Posted in WikinutBusinessAnalysis
The factor that influence credit score are the length of credit, the amount of owed, types of credit, and new credit.
What is Credit Score?
People often speak about credit score that describe your credit performance. According to Wikipedia, Credit score is a numerical expression based on a statistical analysis of a person’s credit files. A credit record based on credit report information typically sourced from Credit bureaus. The famous credit score is built by Fair, Isac, & Co that is known as FICO score.
When we want to apply mortgage loan, the creditor will check the credit score. They want to make sure the debtor can pay the debt on the time. They do not want lend money to some people who is not able to pay off the debt. This is all about business to make money.
If the creditor does not lend money, we have to increase the credit score first. We should pay any credit on time or before the creditor fine us.
There are some factors or indicator that influence or affect the credit score such as credit history. A person whose has no credit history or never borrow money has no credit history, meaning it is difficult to be assessed. That is why some people still hold credit card even they do not need it. They want to have a good credit score. Surely, they spend the credit card very carefully and they pay the bill on time. They limit the credit card spending to avoid overspending.
The history may reflect the future. If the creditor has bad history, they might not pay the debt. The probability of not paying the debt off is so high.
The Length of credit score
The score also appraise based on the length of credit history. You may have credit history for one year. It is difficult to say that you have a good credit score. You have not yet proven that you are the creditor that pays the debt on time. If you have longer history, you might not pay the debt. Say, you have credit in last ten years. I believe you might not pay the debt on time especially you are indiscipline.
The Amount of owed
How much money that you have owed? The bank will not lend the money if you have so much debt. You should not disobey this because it is 30% of FICO scores calculation. People whose have so much debt will be difficult to pay off the debt. They may be confused to allocate money for paying debt.
New Credit
What new credit that you just applied?
Types of credit
What kind of credit that you have applied? If you have applied so much credit types, you will get the better scores. This indicator may not significant due it just contribute 10% of the credit scores.
The Score interpretation
After collected those above data, the bureau will sum the score. THE FICO score range from 300-850. The lower credit score, the worst. You will not get new loan when you have low score. On the other hand, the highest score the better. You will get loan from others.
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