by David Smith July 26, 2024, 7:03 am inBanking

What is Credit Score? About Good, Average, Bad Credit Scores

A Credit Score is a number that shows how likely someone may repay a loan. The maximum Credit Score ranges from 300 to 850 in different countries. Higher scores create better opportunities for getting loans and low APRs. Hence, Credit Scores influence financial worthiness. Though criminal records are not considered to ascertain Credit Scores, certain types of activities will bring down Credit Scores! So, let’s check What is Credit Score?

Key Facts Related to What is Credit Score

Credit Scores vary slightly in different regions.
Countries like Australia/Canada/China/Denmark/Germany/India/Norway/Ireland/South Africa/Sri Lanka/Sweden/the United Kingdom/the USA encourage evaluation based on credit reports.
Equifax/Experian/Serasa Experian/Baihang Credit/Schufa collect information from banks and lenders to compile Credit Scores.
These organizations provide limited free information (or) subscription-based, extensive Credit Score analysis.

Understanding What is Credit Score

The History—The concept of Credit Score evolved in the mid-20th century in the USA with the development of the FICO score by Fair Isaac Corporation to assess individuals’ creditworthiness.

Financial Evils—Without a Credit Score, malpractices like lending decisions could be influenced by personal connections/relationships/networks (or) based on bribery and incomplete/incompetent applications!

Building Better Economy—Credit Scores help organizations evaluate payment history, debt horizons, and credit usage patterns. Therefore, assessing Credit Scores ensures transparency in loan approvals and the determination of eligible interest rates.

What is a Credit Score for Equatable Resource Allocation?

Credit Scores allow banking and insurance companies, education institutions, government organizations, and human resource departments to offer the correct category of plans, programs, and admissions based on applicants’ financial situation, scholarships, jobs, Etc.

Factors for Ascertaining Credit Scores:

Payment history(35% to 40%)
Amounts owed(30% to 35%)
Length of credit history(15% to 20%)
New credit and types of credit/credit mix used(10%) as indicated in Credit Score
Credit utilization checking if too much credit is already given (30%)

Other Factors Include:

Instances of late payments
Delinquency
Total credit line vs. amount used
Credit utilization ratio
Approved repayment period for loans (or) credit accounts
Frequency of credit inquiries made

Note—When organizations make Hard Credit Inquiries, approximately 1-10 points are deducted from Credit Scores. Thus, credit unions anticipate a potential increase in debt. However, Bankrupt customers’ Credit Scores severely decrease due to their inability to manage debt.

Range—A good Credit Score ranges above 670 points or approximately 79% of the maximum Credit Score in different countries, an average Credit Score is between 580-669 points(+68%), and a bad Credit Score is below 580 points(-68%).

Legal Factors—Approximately 10-50 points are deducted for customer’s negative financial behavior/performance. However, fraudulently obtaining loans (or) credit cards, opting for identity theft and misusing other individual’s personal information, and embezzlement (or) money laundering are civil offenses that lead to a Credit Score deduction of 50-100+ points!

Conclusion About Increase Credit Scores

Individuals need to pay bills on time each month
Avoid late payment
Immediately clear delinquent amounts
Keep credit card balances low vs. their credit limits
Opt for only two or fewer credit cards
Open a new credit account when extensively required
Opt for a diverse mix of credit types like mortgages, overdrafts, in-store credit cards, etc., which suggests the dynamics of What is Credit Score!
Try removing deposit/security/legal holds on your accounts
Check your credit reports regularly for accuracy of address, SSN, and contact details, and
Avoid any involvement in fraudulent financial activities/transactions.