Credit score: A major determinant for securing Loans

Credit score is simply put as CREDIT CAPABILITY. From ‘Credit Score’, we have the word ‘Credit’ and the word ‘Score’, which implies the rating or scoring of how well you can pay back debt based on your credit history. The main idea behind credit score generate out from this question; “Will I get my money back from this borrower?”.

It has and will always be the concern of creditor how he or she will get his or her money back from the debtor and even before the word credit score surface, it has been the practice of the creditor to make findings about the person he/she is about to lend money so that they will be sure that though the person may not have money at present, he/she has what it takes to pay back the borrowed money.

How is credit score calculated

How your credit score calculated

The criteria used by agencies like bank, bureau, and others financial institutions are all different but they still follow a regular pattern. The first and foremost thing that stand to be the major determinant of a good or a poor credit score is the credit history.

  • How long you have been taking credit?
  • How frequent you take credit?
  • The limit of credits you take?
  • Have you been missing payments at its due time?
  • How the late payment interest has been affecting you?
  • Are you having more than one unsettled credit together at some point?
  • Do you have things worthy of collateral if you cannot meet up with the credit any longer?

If you have a good credit history, the easier and better it will be for creditors, banks and other financial institution to grant you another credit and all together the better your credit score will be.There may not be a general way of calculating a credit score but it is a general procedure that is used in calculating credit score.

Your credit report is used to generate your credit score but it is relieving to know that there are various software that can also calculate your credit score. Both offline and online free apps though some are not free.

Credit Utilization Ratio

Credit utilization ratio

It is another way being used to calculate credit score. According to a source; “is the percentage of borrower’s total available credit” which is presently in used by various agencies to calculate credit score.

Check your credit score

Credit score: It is a major determinant for securing Loans. The big questions still stand and it needs to be answered before any creditor can proceed to lend the debtor money: “Is the person capable of paying back?”, “Is the person measure up to the debt in terms of financial ability?”, “will the person be able to meet the time frame given to pay the debt and any interest attached to it?”. On and on go those questions.

Creditors and especially financial institution do not like to be involved in risky practices when it comes to money. We’ve heard of debtors borrowing some amount and because of un-foreseen circumstances, they were unable to pay back which is not good enough.

So there is great need for credit score check and it is something we should be able to do ourselves not waiting for the creditor to do that because we like it or not, before any lenders can accept our propositions, they will do their own credit score checks (i.e. Hard Check) on the borrower.

Yes, this is called Hard Check because a thorough check is done on the credit reports by the prospective lenders so as to make decision pertaining to lending out money to the borrower. While we have a hard check, so also is the soft check which is the soft background credit score checks going on without the knowledge of the person. It is usually done when your credit reports are being checked without you knowing about it.

Understand 3 bureau credit reports and FICO scores

For the soft credit checks, there are bodies and agencies involved in this. They simply go to banks and any other credit institution that you have account with not excluding the local credit institution e.g. Cooperative society, e.t.c. As I said earlier, this check does not affect your credit or your earnings. It is from these agencies the creditors get their soft checks information about your credits reports from. We have three major of these credit score agencies or bureaus:

  • Equifax
  • Experian
  • Trans Union

I said major credits score bureaus because we have numerous credit score bureaus but those are they three major bureaus. The bureaus do not work together meaning so many times credits report of each bureau are not consistent with each other.

The credits report of the same person may be different across each bureau which is not supposed to be so. So how do we maintain balance? This is where FICO score enters.

Fair Isaac Corporation (FICO) are not another credit bureau that goes about to gather credit reports as other credit agencies does but instead they are just there for check and balancing. Making sure all credits reports from all bureaus are consistent with each other and how did they achieve this? They achieve this basically by going to the credit bureaus to gather reports and they try to bring and juxtapose them together to reach a balance point of consistent credit reports across the credit bureaus. They therefore, come out with FICO score.

Credit score scale

Credit Score Rating
750 – 850 Excellent
700 – 749 Good
650 – 699 Fair
550 – 649 Poor
549 and below Bad

What is the highest credit score you can get?

The highest FICO credit score achieved so far is 850. We have only few people that were able to climb up to the top of the credit score. How it can be achieved is based on several factors but it can all be summed up in to just a line: “Proper handling of Debt!!!”

To attain a credit score as high as that is not something you sweat on. You make sure you monitor on regular bases your credit reports and probably score too!!! That way you’ll know what you’re doing that makes the score to go high and down.