What a Credit Report Score is All About
It is very important to posses a good understanding of what a credit score implies, what purposes it serve and what impact it has on your financial or credit transactions. It is due to a lack of knowledge of the full implications of a credit report score that most people have to turn back disappointed when they go to obtain a loan for such purposes as college tuition, acquisition of a car or your dream house.
It is your credit score that gives a lender that all important intuition or the “sixth sense” to decide to what extent he could rely on you to settle the loan you are applying for in full in a timely manner; or whether he should lend you a lesser amount at a higher rate of interest giving you a reduced period of repayment. If a lender could decide in such detail by looking at a credit report score, then there must be really quite a lot behind a credit score. Ironically many people learn this truth only after they fail to obtain a very important loan or two.
A lender can see from the borrower’s credit history how he has performed with regard to making payments on due dates on his past borrowings.
Further, a lending institution needs to minimize its possible losses by lending to high-risk borrowers; so that a lender gauges the extent of risk he is taking by lending to a prospective borrower, from his credit report.
A credit report serves as a profile of the prospective borrower with his background and habits pertaining to financial and credit disciplines, so that a lender gathers the under mentioned particulars from the said report:
- Borrower’s name in full with postal addresses – past and present, date of birth and his past and present employment details.
- A comprehensive list of all his past borrowings from different lenders together with respective details of amount of credit and date granted, nature of credit (car loan, mortgage loan, credit card etc.) details of repayments and the balance outstanding (if any) as at date.
- A statement of inquires made by various lenders during the last two years including inquiries made with the borrower’s consent in connection with previous loan applications and other confidential inquiries made by some lenders for background checks on the borrower without his knowledge. The latter is unfavorable for the credit score for it shows a lender’s suspicion has been aroused.
- Information on any legal proceedings in connection with previous loans, property foreclosures, filing for bankruptcies, liens and other lawsuits, courts decrees etc.
What Is Credit Score?
A credit score could be defined as a statistically computed figure by a credit-reporting agency using complex formulas and models; and is based on an individual’s credit report containing his credit history. It is designed mainly for the benefit of lenders to assess the creditworthiness of a potential borrower and the level of risk that he undergoes in lending to that borrower.
FICO score is another name for a credit score as it was the company named Fair Isaac Corporation that pioneered in the building of a model to quantify financial/credit behavior to 3 a digit figure. The credit score is in the range of 300 to 850 for easy assessment of the standing and risk factors involved with potential borrowers, with some credit scores being computed presently using software from the company called Fair Isaac Corporation. A credit score simplifies into a small task a lot of mind-boggling facts and figures that otherwise needs a lot of manual analytical work. It is now as simple as - higher your credit score, lower is your risk factor to a prospective lender, with those having high credit scores standing a higher chance of getting their loans.
A good working knowledge of a credit report score enables you to estimate your chances of obtaining a loan prior to going to lender after another only to come back disappointed. You could also maintain the score at an appropriate level, improve on it, and also tailor make it to a required level in advance in preparation for applying for an important loan, for example by reducing your debt, creating credit if you don’t have any credit history, or obtaining new credit the easy way with a supermarket credit card and effecting a few monthly payments; and opening a new savings account etc. in order to spice up and camouflage your credit record. All this will ensure higher chances of securing your loans at the appropriate times without any problems.
The confidence that breeds from being aware that you possess a good FICO score to succeed in your next loan application will do much good for your morale and motivate you to maintain a good credit score all the time to enable you to pass through the radar networks of lenders easily without letting them pass you by when it comes to granting loans.
|