What Is A Credit Score
Some people do not know what a credit score is. This score can affect how much money they can get and at what rate. Individuals who have a high credit score will be offered lower rates and may find an easier time getting financing. However, what exactly a credit score is used to determine credit risk is not all the information you need to know. Let's start off by understanding what it is and how it is used. Credit scores are used by lending agencies and selected lenders to determine how well an individual consumer repayment of debt based on their past credit history or credit habits.
Credit Scores vs FICO
One major confusion that consumers have is between a credit score and a FICO score. The term is actually derived from the name of the company that the Fair Isaac Company produced the product for. The FICO score makes up a part of a bigger picture. Lenders assume that they can get a fair estimate of the risk worthiness of a borrower based on the FICO score and higher the FICO score, the lesser the risk. This means that a borrower with a high credit score is likely to not only pay back their debts on time but will not default on default debt. Higher FICO scores would benefit those seeking a longer repayment period and lower interest rates.
Why Credit Scores Matter
In general terms, credit scores are important when it comes to getting the loan. Although one of the most important steps in one's financial life, many individuals do not have a clue about how banks and lenders evaluate credit. They do not know the full extent of the facts about credit such as:
- The credit score hint of stage the credit history
- The reporting of each credit
- How much of the credit is actually positive debt
- And percentage of debt that can be carried off with payments
If the credit report is not so great, the total score is lower than normal. So even if the individual has a negative credit report, such as a bankruptcy or foreclosure, he or she may be more likely to receive a loan than someone whose credit is less than perfect but the best of the group or the individual has great credit.
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