The key against this habit was the invention of a point system which allowed lenders to standardize the credit decisions, by scoring different variables on the customer’ s existing credit report.
The system headed towards perfection at the time when thousands of payment information began to be extracted from customers. Combined with a software application, credit scoring made the entire crediting process much more efficient, guaranteeing secure granting methods both for customer and financial companies. As a result of a common effort from various credit reporting institutions, VantageScore was born, marking the very first approach to credit scoring methodology.
If one is still confused about this topic then read the following explanation: credit score is the means by which lenders decide what is the probability of getting paid back after the grace period. If we go more into detail, credit scores practically are constantly changing numbers, the rhythm being set by the sort of the ongoing transactions. To give you a precise idea, these changes occur for example when payments are made into or from your account, not to mention when a new account gets opened.
Credit scoring has never been a well chartered territory precisely because it is extremely fluctuating. Still a model of how scores are calculated exists: customer credit profiles are analyzed in order to identify common variables. These variables are then grouped with one goal, which is, predicting future customer behavior. This step is almost simultaneously followed by the act of assigning a limit for a certain type of credit (credit card issue, loans, mortgage, etc.).
What is certain about credit scores is that some information have impact on them, whereas some do not.
Among those affecting, we find:
- Seriousness and numbers of late payments
- Total debt
- Number and age of existing accounts
On the other hand there are exceptions such as:
- Sex, marital status, race and religion
The key when discussing credit score improvement is represented by score factors, some of them being very familiar from the above example. Besides these few it is good to know about the following ones:
- There could be no better idea in improving scores than making the payments on time, delayed payments can have a very negative impact on your score.
- Embrace low balances on credit cards, climaxing debts are compromising for future scoring.
- Do not open new accounts in a hazardous manner, those who think this could be advantageous for your scoring are definitely wrong.
As a conclusion to the statements made till this point, it is crucial to emphasize once again the very basics of credit scoring, as the latter one indicates a positive financial handling of your account.
Very few are sensible when payment day arrives. Some are aware that they have to pay back the credit but cannot due to low funds and some despite good financial background, forget to do it. Automatic reminder systems are available and do not cost anything at all, it would be quite a pity to trash precious credit scores
and be forced to regain your former status in matter of years.
Constantly bear in mind that “Knowledge is power” and the most indispensable step toward a loan has to be the understanding of your credit report, within it your credit scores and the way they work. You had better check your credit report at least once a year, as it is free of charge. The law itself protects each borrower and allows free access once in a year. Some rectification is still needed, the report is free indeed, yet to find out the exact scoring one must pay a symbolic fee.
Your credit is highly important, understanding and correctly handling it is paramount. “If you're not part of the solution, you're part of the problem.”