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What is credit scoring model?
A credit scoring model is a package designed with either formulas or a set of rules to analyze an individual's statement of account. This is a process undertaken by lenders and credit card issuers so as to reduce risks of accumulated bad debt, and more so minimize the issuance of loans to individuals who portray poor credit score.
Types
Judgmental credit scoring model
As the name suggests, it is an evaluator system based on aspects such as credit report ratios, paying history, bank references, and credit agency recommendations. A summery of these is done and fair judgment is made reflecting a person's creditworthiness.
Statistical credit scoring model
This modern model type is slightly different, because it does not depend on the judgment made by the credit administrative board. It is a more complicated process which involves analyzing a persons credit records together with the credit agency information. It is also a more accurate computerized procedure which uses data from one or numerous firms to establish an individuals credit score.
The logic used
A credit score is a compiled historic report articulated numerically to ascertain an individual's qualification for a loan; it clearly shows his or her borrowing and paying behaviors. This information is needed by lenders to set interest rate on loans to be offered to an individual based on his/ her creditworthiness. For instance, if a person has got a doubtful repayment history or any legal adjudicated debts like tax, he will pay higher annual interest rate on any loan. While clients with reputable credit worthiness will pay lower annual interest rates on the same amount.
As a rule, a person with trustworthy credit score often enjoys the following benefits;
-Medical loans at lower payable interest rates
-Apparent job offers- individual appears more planned and able to manage things.
-Loans for automobile
-Mortgage loans.
It is therefore importance for an American dweller to put these details in account, due to the fact that once an individual is declared bankrupt; it becomes very difficult to wipe away bad credit reports. In addition, these, reports can stay longer than even ten years. Professionally, it is clear that filling for bankruptcy is not the best way out, this is because it will completely deform an individuals' credit score.
How to improve your score
Here are some good protocols that can enable young families and educated individuals to meet their set goal of owning house, car or even meeting medical bills by increasing their credit score;
-Use of secure credit cards with limit reported by issuers.
-Ensure perfect credit card update.
-Resolving financial records like credit card by paying on time
-An individual should not exhaust all his/ her credit every month.
-A young coupled family can seek room to be the authorized user of an old relatives' credit card.
-Student can seek programs such as Ed.gov (student loans, William D. Ford Federal Direct Loan Program) to help them settle their loan payment or set them on safe track.
-Ensuring that old and paid debt reports are updated, this can be approved though a written agreement.
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