What does Credit score mean?
The credit score is a number composed of three digits, and it represents how well an individual or corporation handles debt. The bigger the number the better the score is. The people and firms with high credit scores can opt for a larger loan at a better rate. The people with low credit scores get inadequate terms, or even get denied the opportunity to get a loan. There are a lot of types of credit scores that use different formulas; all of these scores are alike in that they evaluate risk and try to foresee the outcome of the applicant’s behavior. Elements such as debit to income ratio, employment, outstanding credit line, past payment behavior, income all factor in to the applicant’s credit score.
The widespread use of credit scores was first pioneered by the Fair Isaac Corporation, while the FICO score, its product, remains the most widespread today.
There are other credit scoring system providers besides the Fair Isaac Corporation, as well. Customers can usually keep their credit scores at an optimum level, by keeping up a long, and well maintained history of paying their usual bills before they get charged interest, and by limiting their debt.
The credit score can be a number from 300 to 850 the lower the number the worse a persons credit score is. This number is of great significance to a lender, as it affects the decision to extend credit and the terms of the credit as well. An example of bad credit would be that any borrower that has a score under 600 will be unable to get a prime mortgage and will be obliged to go to a sub prime lender for mortgage, which probably has a much higher interest rate. This credit score is so important that if it sinks under a certain point, and the person is declared as having “bad credit”, he or she will be denied future credit.