In the past, the “tools” at the disposal of the lender were bits and pieces of information, such as the borrower’s job, marital status or roughly a month’s income. The conventional approach is to set a threshold based on these dimensions and grant approval as long as each dimension of the borrower meets these criteria. There are some problems with this approach:
- Although some borrowers do not meet some threshold conditions, some other conditions may be particularly excellent. The single-dimensional strong rejection rule causes low approval efficiency.
- It is a difficult problem how to use scattered and unstructured information to integrate into the scientific kernel system.
- Post-loan management, asset quality analysis and risk pricing need to be supported by quantifiable digital evaluation systems.
Most of these problems can be solved by using credit scores: representative individual risk is standardized, and scores exist to provide the easiest criteria for approval. The overall quality of credit assets has also been quantified.
The credit score of the United States is a relatively easy to understand standard to evaluate a person’s credit according to the credit report details issued by Experian, Equifax and TransUnion. It tells lenders about your creditworthiness (how likely you are to pay back a loan based on your credit history). It is calculated using the information in your credit reports. Credit scores influence the credit that’s available to a person and the terms (interest rate, etc.) that lenders may offer. It’s a vital part of credit health.
There are many kinds of credit score models. The following is the most commonly used FICO Score as an example(See Wikipedia for other credit scoring models).
The typical FICO score is between 300 and 850, and the higher the score, the better the user’s credit, and the lower the risk of approving a loan in the eyes of the credit agency. So it’s easier to get a credit card or loan with a high score (above 740 is usually good), and get lower interest rates and more discounts.
|<580||Poor||Credit scores are well below the average American consumer, and credit CARDS, loans and deposits are often unavailable.|
|580-669||Fair||Credit scores are below the U.S. average, and loans are available but usually at higher interest rates.|
|670-739||Good||The credit score is close to or slightly above the American average, and most lenders think the person has good credit.|
|740-799||Very Good||With credit scores above the American average, lenders consider them very reliable borrowers.|
|800+||Exceptional||Credit scores are at the top of the list, and borrowers who are considered excellent by lenders get the best deals and interest rates.|
FICO credit score model is also subdivided into many versions, and according to different credit report data (e.g. The three institutions mentioned above the report content may not be exactly the same) calculated scores and grades will be different, so their check the scores may like to apply for a loan when the bank to check the score will be different, but generally will not differ too far.
Don’t underestimate the difference between the rating. When you need to borrow a lot of money to buy a car or a house, getting a low interest rate can easily save you thousands or even tens of thousands of dollars in interest over a few years. But FICO credit scores, which require users to have a credit history of at least six months, can be harsh for newcomers.
Improving your credit score requires understanding what constitutes a credit score. FICO is based on five factors:
- Payment History
- Amounts owed
- Length of Credit History
- Credit mix
- New credit
The credit score of the United States mainly depends on long-term accumulation and overall data. Occasionally I open more CARDS or close my account, and even the occasional late payment is not a big problem in the long run.Credit card companies will not even report past due within 30 days, and although there is a penalty, it will not affect credit scores.
But be especially careful to avoid charge-off, colletion account, foreclosure, bankruptcy, or other records that push your credit score into a foreclosure or bankruptcy.Please Keep a good credit record for a long time.
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