Credit Basics 101
What You Need To Know About Credit

Credit Scores

Credit scores determine if someone gets approved or declined on any type of credit.

In commercial terms, credit scores are defined as a numerical expression based on a statistical analysis of a person's credit files, generated by a mathematical algorithm.

To be more precise, credit scores are determined on the basis of the certain amount of credit a person has taken.

His credit statements are compared with the accounts of other people applying for credit to the same financial body.

Bankers and credit card companies are termed as lenders who use credit scores to evaluate the potential risk while lending money to the consumers and to alleviate losses due to bad debt.

Credit scores are being used by lenders to determine who qualifies for a loan and who does not, at what interest rate, and what credit limits they could lend the money to the person and in what time and at what interest they could get their refund back.

There are lenders who sometimes build or create regression models that predict the amount of bad debt a customer may incur.

But it is really difficult and hard to predict about the debt return; still it is done to have an idea in the future if this person is a high risk or worthy of future credit.

Lenders usually look for a higher number as we have seen that people with a higher score get a lower rate of interest.

Different countries use different techniques to make credit scores and similarity is found between Canada and USA. But the credit system is said to be better in Australia.



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