The credit score is a numerical expression based on a person's credit file level analysis, to represent an individual's creditworthiness. The credit score is primarily based on credit report information typically sourced from the credit bureaus.
Lenders, such as banks and credit card companies, use credit scores to evaluate the potential risks posed by borrowing money to consumers and to reduce losses due to bad debt. The lender uses a credit score to determine who is eligible for the loan, what the interest rate is, and what the credit limit is. The lender also uses a credit score to determine which customers are likely to bring the most revenue. The use of credit or identity assessments before granting access authorization or credit granting is the implementation of a trusted system.
Credit score is not limited to banks. Other organizations, such as mobile phone companies, insurance companies, landlords, and government departments use the same techniques. Digital finance companies such as online lenders also use alternative data sources to calculate the credit worthiness of the borrower. Credit scores also have a lot of overlap with data mining, which uses many similar techniques. These techniques combine thousands of factors but are similar or identical.
Video Credit score
By country
Australia
In Australia, credit ratings are widely accepted as the primary method of assessing credit worthiness. Credit scoring is used not only to determine whether the credit should be approved for the applicant, but for credit assessment in setting credit limits on credit cards or stores, in modeling behaviors such as collecting valuations, and also in pre-approval of additional credit to an existing corporate client base.
Although logistic (or non-linear probability) modeling is still the most popular way to develop scorecards, other methods offer powerful alternatives, including MARS, CART, CHAID, and random forest.
Prior to March 12, 2014, Veda Advantage, the premier provider of credit file data, only provides a negative credit reporting system that contains information about apps for credit and a negative list showing default under a credit contract. Veda was acquired by Equifax in February 2016, making Equifax the largest credit agent in Australia. The free site that gives you your Equifax credit score is GetCreditScore.
With the introduction of subsequent positive reporting, lending companies began to use its use with some risk-based pricing practices to set lending rates.
Austria
In Austria, credit ratings are blacklisted. Consumers who do not pay bills end up on blacklists held by different credit bureaus. Having blacklisted entries may result in a contract rejection. Certain companies including telecom operators use the list on a regular basis. Banks also use this list, but inquire about security and income when considering loans. Next to this list, some bureaus and credit bureaus provide credit ratings to consumers.
According to the Austrian Data Protection Act, consumers should choose to use their personal data for any purpose. Consumers may also withhold permission to use the data later, making further illegal distribution or use of data collected. Consumers are also entitled to receive free copies of all data held by credit bureaus once a year. Data collected incorrectly or unauthorized should be removed or corrected.
Canada
The credit reporting and scoring system in Canada is very similar to that in the United States and India, with two of the same reporting agencies active in the country: Equifax and TransUnion. (Experian, who entered the Canadian market with the purchase of Northern Credit Bureaus in 2008, announced the closure of its operations in Canada on April 18, 2009).
There are, however, some major differences. One is that, unlike in the United States, where consumers are only allowed one free copy of their credit report a year, in Canada, consumers can order a free copy of their credit report several times a year, as long as the request is made in writing, and during the consumer requests a printed copy to be sent by mail. This request by consumers is recorded in the credit report as 'soft investigation', so it does not affect their credit score. According to Equagram's ScorePower Report, the Equifax Beacon score ranges from 300 to 900. Trans Union Emperica scores also range from 300 and 900.
The Government of Canada offers a free publication called Understanding Your Credit Report and Credit Score . This publication provides examples of credit reports and credit score documents, with an explanation of the notation and code used. It also contains general information on how to build or improve the credit history, and how to check for signs that identity theft has occurred. This publication is available online at the Financial Consumer Agency of Canada. Paper copies can also be ordered at no cost to Canadians.
Denmark
Credit rating is widely used in Denmark by banks and a number of private companies within telecommunications companies and others. Credit score is divided into two:
- Private: Defaultprobability
- Business: Probability of bankruptcy
For personal, credit ratings are always made by creditors. For a business either made by a creditor or by a third party.
There are several companies that specialize in developing credit scorecards in Denmark:
- Experian (general valuation for business)
- Bisnode (general valuation for business)
Credit cards in Denmark are mainly based on information provided by applicants and publicly available data. This is strictly limited by law compared to its neighbors.
German
In Germany, credit ratings are widely accepted as the primary method of assessing credit worthiness. Credit scoring is used not only to determine whether the credit should be approved for the applicant, but for credit assessment in setting credit limits on credit cards or stores, in modeling behaviors such as collecting valuations, and also in pre-approval of additional credit to an existing corporate client base.
The consumer has the right to receive a free copy of all data held by the credit bureau once a year. Currently Schufa, the main provider of credit file data, provides scores for about three quarters of the German population.
India
In India, there are four credit information companies licensed by the Reserve Bank of India. The Credit Information Bureau (India) Limited (CIBIL) has functioned as a Credit Information Company from January 2001. Furthermore, in 2010, Experian, Equifax and Highmark were licensed by Reserve Bank of India to operate as Credit Information Company in India. CIBIL is by far the oldest and most popular, having its origins in the year 2000. Experian has been in existence since 2006 and obtained an operating license in 2010. Highmark and Equifax also received an operating license in 2010.
Although the four credit information companies have developed their respective credit scores, the most popular are CIBIL credit scores. The CIBIL credit score is a three-digit number representing a summary of the individual credit history and credit rating. This score ranges from 300 to 900, with 900 being the best value. Individuals without credit history will have a score of -1. If credit history is less than six months, the score will be 0. The CIBIL credit score takes time to build and is usually required between 18 and 36 months or more from credit usage to obtain a satisfactory credit score.
Norwegian
In Norway, credit scoring services are provided by three credit rating agencies: Dun & amp; Bradstreet's decision, Experian and Lindorff. Credit ratings are based on publicly available information such as demographic data, tax returns, taxable income and any Betalingsanmerning (non-payment records) that may be registered to an individual who gets credit. Once assessed, a person will receive a notice (written or by e-mail) from the rating agency stating who did the credit score as well as any information given in the score. In addition, many credit agencies use a special scorecard based on a number of parameters. Credit scores ranged between 300 and 900.
South Africa
Credit scores are used throughout the credit industry in South Africa, with people like banks, micro lenders, clothing retailers, furniture retailers, specialty lenders, and insurers all using credit scores. Currently all four retail credit bureaus offer credit bureau scores. Data stored by credit bureaus include both positive and negative data, increasing the predictive power of individual scores. TransUnion (formerly ITC) offers the Empirica Score, in mid-2010, in the 4th generation. Empirica scores are divided into two suites: account origination (AO) and account management (AM). Experian South Africa also has a Delphi credit score with their fourth generation to be released (late 2010). In 2011, Compuscan released Compuscore ABC, a scoring suite that predicts the probability of customer defaults during the credit life cycle. Six years later, Compuscan introduced Compuscore PSY, a 3-digit psychometric-based credit bureau scores used by lenders to make informed loan decisions on thin files or marginal declines.
Swedish
Sweden has a credit scoring system that aims to find people with a history of negligent paying bills or, most commonly, taxes. Anyone who does not repay the debt on time, and fails to make a payment after the reminder, will pass on his case to the Swedish Enforcement Authority which is the national authority to collect the debt. The appearance of a mere company, or a government office, as a debtor to this authority will result in a record among private credit bureaus; However, this does not apply to individuals as a debtor. This record is called BetalningsanmÃÆ'¤rkning (non-payment note) and by law it can be kept for three years for individuals and five years for the company. This type of unpaid record will make it very difficult to get a loan, rent an apartment, get a phone subscription, rent a car or get a job where you handle cash. The banks, also use income and asset figures in relation to the valuation of the loan.
If someone gets an order to pay issued by the Enforcement Authority, it is possible to deny it. Then the party requesting payment must show the truth in the district court. Dispute disputes are seen as recognition of debt. If the debtor loses the trial, the costs for the trial are added to the debt. Taxes and authority fees should always be paid on demand unless payment has been made.
Any person with a Swedish national identification number should register a valid address, even if living abroad, since the mail sent is deemed to have been delivered to that person once they reach a registered address. For example, Swedish astronaut Christer Fuglesang got BetalningsanmÃÆ'¤rkning since the car he ordered, and therefore has, passed a toll station for Stockholm congestion taxes. At that time, he stayed in US training for his first Space Shuttle mission and had an invalid old address listed for that car. Letters with payment requests do not arrive on time. The case was appealed and repealed, but the non-payment note remained for three years because it was irrevocable in accordance with the law.
United Kingdom
Credit Scoring in the UK is very different from the United States and other countries. There is no such thing as a universal credit score or a credit rating in the UK. Each lender will assess potential borrowers based on their own criteria, and this algorithm is effectively a trade secret. The "credit scores" available to individuals to view and be provided from Credit Reference Agencies such as Call Credit, Equifax and Experian are the results of marketing departments in credit agencies who realize they can sell products to consumers and are not used by lenders. Lenders instead use their own internal valuation mechanism.
The most popular statistical technique employed is logistic regression to predict binary results: bad debt or no bad debt. Some banks also build regression models that predict the amount of bad loans that may be borne by customers. Usually this is much harder to predict, and most banks only focus on binary results.
The determination of credit scores is strictly regulated only by the Financial Behavior Authority when used for the purpose of the Advanced Approach to Capital Adequacy under Basel II regulations.
Credit ratings are strictly regulated in the UK, with industry regulators being the Office of the Information Commission (ICO). Consumers may also submit a complaint to the Financial Ombudsman Service if they have a problem with the Credit Reference Agency.
It is very difficult for consumers to know in advance whether they have a credit score high enough to be accepted for credit with a given lender. This situation is due to the complexity and structure of credit scoring, which differs from one lender to another.
Lenders do not need to disclose their credit score head, nor do they need to reveal the minimum credit score required for the applicant to be accepted. Because only the lack of information to consumers, it is impossible for him to know in advance if they will pass the credit rating requirements of the lender. However, it may still be useful for consumers to gauge their chances of success with their credit or loan application by checking their credit score before signing up.
If the applicant is denied for credit, the lender is not obliged to disclose the exact reason why. However, industry associations including the Financial and Leasing Association require members to provide satisfactory reasons. The data-sharing agreement of bureaus also requires that applicants refuse on the basis of bureau-credit data notified that this is the reason and the credit bureau address should be provided.
United States
In the United States, the credit score is a number based on the statistical analysis of a person's credit file, which in theory represents a person's creditworthiness, which is the possibility that people will pay their bills. The credit score is primarily based on credit report information, usually from one of three major credit bureaus: Experian, TransUnion, and Equifax. Revenue and job history (or lack thereof) are not considered by major credit bureaus when calculating a credit score.
There are various methods of calculating credit scores. The FICO score, the most commonly used credit score type, is a credit score developed by FICO, formerly known as Fair Isaac Corporation. By 2018, there are currently 29 different versions of FICO scores used in the United States. Some of these versions are "industry-specific" scores, that is, scores generated for specific market segments, including automotive loans and credit cards (credit cards). The industry-specific FICO score generated for automotive loans is formulated differently from the FICO score generated for credit card loans. Almost every consumer will have a different FICO score depending on the type of FICO score ordered by the lender; for example, a consumer with multiple full paid car loans but no reported credit card payment history will generally score better on FICO automotive enhanced scores than on an FICO bank card upgrade score. FICO also generates some "general purpose" values ​​that are not tailored to a particular industry. Industry-specific FICO scores range from 250 to 900, while general-purpose scores range from 300 to 850.
FICO scores are used by many mortgage lenders who use a risk-based system to determine the likelihood that the borrower may fail to fulfill its financial obligations to the mortgage lender. For most mortgages originating in the United States, three credit scores are obtained from consumers: Beacon 5.0 score (Beacon is a trademark of FICO) calculated from consumer Equifax credit history, FICO Model II score, calculated from Experian consumer credit history, and score of Classic04, which is calculated from Trans Union consumer history.
Credit bureaus also often resell FICO scores directly to consumers, often in the form of a general purpose FICO 8 score. Previously, credit bureaus also sold their own credit scores that they self-developed, and which did not require payment to FICO to make use of: Equifax RISK score and Experian's PLUS score. However, by 2018, this score will no longer be sold by credit bureaus. Trans Union offers Vantage 3.0 scores for sale to consumers, which is a version of the VantageScore credit score. In addition, many large lenders, including major credit card issuers, have developed their own ownership appraisal models.
Studies have shown scores to predict risks in credit and insurance guarantees. Some studies have even shown that most consumers are beneficiaries of lower credit and insurance premium costs due to the use of credit scores.
New credit scores have been developed in the last decade by companies such as Scorelogix, PRBC, L2C, Innovis, etc. Who does not use bureau data to predict credit worthiness. Credit Score JSS Scorelogix uses a range of different risk factors, such as the employment stability of the borrower, income, income sufficiency, and economic impact, in predicting credit risk, and the use of alternative credit scores increases. This new type of credit score is often combined with FICO or bureau scores to improve prediction accuracy. Most current lenders use some combination of bureau scores and alternative credit scores to develop a better understanding of the borrower's ability to pay. It is widely acknowledged that FICO is a measure of the ability to pay in the past. New credit scores that focus more on future paying capabilities are deployed to improve the credit risk model. L2C offers alternative credit scores that use the history of utility payments to determine credit worthiness, and many creditors use this score in addition to a bureau score to make loan decisions. Many creditors use JSS Scorelogix scores in addition to bureau scores, given that JSS scores combine employment and income stability to determine if the borrower will have the ability to repay debt in the future. It is estimated that FICO scores will remain the dominant score, but will likely be used in conjunction with other alternative credit scores that offer other risk images.
The use of credit history in job screening has increased from 19% in 1996 to 42% in 2006. However, the credit report for job screening purposes does not include credit scores.
Americans are entitled to one free credit report in any 12-month period from each of the three credit bureaus, but are not eligible to receive a free credit score. Three credit bureaus run Annualcreditreport.com, where users can get their free credit report. Credit scores are available as additional features in reports for a fee. If a consumer disputes an item on a credit report obtained using a free system, under the Fair Credit Reporting Act (FCRA), the credit bureau has 45 days to investigate, rather than 30 days for the report otherwise.
Or, consumers who want to get their credit score in some cases can buy it separately from the credit bureaus or can buy their FICO score directly from FICO. Credit scores (including FICO scores) are also available free of charge by subscribing to one of the many credit report monitoring services available from credit bureaus or other third parties, although to actually get free scores from most of these services, one must use credit cards to sign up for a free trial subscription from the service and then cancel before the first monthly charge. Websites like WalletHub, Credit Sesame, and Credit Karma provide free credit scores without credit cards, using the TransUnion VantageScore 3.0 model. As of March 2009, credit card holders issued by Washington Mutual were offered a free FICO score each month through the bank's website. (Chase, who took over Washington Mutual in 2008, stopped this practice in March, 2009.) Chase continued the practice of offering free FICO scores in March 2010 from selected cardmakers to rule out the majority of former WAMU cardholders.
Under the Fair Credit Reporting Act, the consumer is entitled to a free credit report (but not a free credit score) within 60 days of any harmful action (for example, being denied credit, or accepting a substandard credit terms from the lender) taken as a result of their credit score. Under the Wall Street reform laws passed on July 22, 2010, consumers are entitled to receive a free credit score if they are denied loans or insurance due to their credit score.
Generic or classic FICO credit scores range between 300 and 850. VantageScore 3.0 scores range from 300-850. The old VantageScore is between 501 and 990.
The first step to interpret the score is to identify the source of the credit score and its use. There are many scores based on various valuation models sold to lenders and other users. The most common ones are created by FICO and are called FICO scores. FICO is a public company (under the ticker symbol FICO) that creates the most famous and most widely used credit score model in the United States. FICO generates scoring models installed and distributed by the three largest national credit repositories in the US (TransUnion, Equifax and Experian) and two national credit repositories in Canada (TransUnion Canada and Equifax Canada). FICO controls most of the credit score markets in the United States and Canada although there are several other competing players who collectively share a very small percentage of the market.
In the United States, the generic FICO median score was 723 in 2006 and 711 in 2011. The performance definition of the FICO risk score (designated stated goal) is to predict the likelihood that consumers will go the last 90 days because or worse over the next 24 months after the score is calculated. The higher the consumer score, the less likely he will go the last 90 days because within the next 24 months after the score has been calculated. Because the use of different loans (mortgages, cars, credit cards) has different parameters, the FICO algorithm is adjusted according to the predictability of that use. For this reason, a person may have higher credit scores for revolving credit card debt when compared to mortgage credit scores taken at the same time point.
Interpretation of credit scores will vary by lender, industry, and the economy as a whole. While 640 has been a division between "prime" and "subprime", all considerations about scores revolve around general economic strength and investor appetite for risk in providing funding to borrowers especially when scores are evaluated. In 2010, the Federal Housing Administration (FHA) tightened its guidance on credit scores to a small degree, but lenders who had to serve and sell securities packed for sale to the secondary market largely upped their minimum score to 640 in the absence of a strong one. compensation factors in the borrower's loan profile. In another housing example, Fannie Mae and Freddie Mac began charging more than 75% of scores under 740. Furthermore, private mortgage insurance companies would not even provide mortgage insurance for borrowers with scores below 660. By therefore, "prime" is the product of the lender's lender's appetite for the borrower's risk profile at that time the borrower asks for the loan.
Several factors affect individual credit scores. One factor is the amount borrowed by a person compared to the amount of credit available to the individual. When someone borrows, or exploits, more money, the value of individual credit declines.
Maps Credit score
See also
- Alternate data
- Credit bureau
- Credit history
- Credit reference
- Credit scorecard
Notes and references
External links
- "FTC Guide for Credit Score".
- "Video Credit Score - Federal Trade Commission".
- "Canadian Financial Consumer Agency".
- "Experian Range Score Understanding Fico".
- "How Credit Score Works".
- "Credit Research Center Credit Award".
- "Your Credit Score Is Rank, Not Score".
Source of the article : Wikipedia
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