Credit Risk Score- What is the credit risk score and how to improve it?

 What is the credit risk score and how to improve it?

The credit risk score is a numerical expression that reflects the possibility of the borrower default on the loan or other financial liability. The credit risk score is one of the key factors that assess the credit potential of lenders and investors borrowers and the terms and conditions of the loan or investment Use to determine.

The credit risk score is based on various information about the borrower's financial history and behavior, such as payment records, debt levels, income, credit use, etc. The credit risk score can range from 300 to 850, with high scores indicating low credit risk and low scores indicating higher credit risk 

Depending on the purpose and source of the score, there are different types and models of credit risk scores. Some of the most commonly and widely used credit risk scores are:

FICO Score:

Developed by Fair Isaac Corporation, it is the most popular and widely used credit risk score in the United States. FICO ® Scores are used to make decisions to lend to 90% of the highest lenders in the United States. FICO ® Score is calculated using five main types of information: payment date ( 35 ٪ ), the amount owed ( 30 ٪ ) ، Credit History Length ( 15 ٪ ), New Credit (, and Credit Mix ( 10 ٪ ).

Vintage Score :

This is another major credit risk score in the United States, developed by three national credit bureaus: Ecofax ®, experienced ® ، And trans union ®. Vantage scores ® were created to provide more consistent and accurate credit risk scores in different data sources and scoring model 4. VantageScore ® Calculated using six main types of information: payment date ( 40 ٪ ), age and type credit ( 21 ٪ ) ، Credit Usage ( 20 ٪ ), Balance (, Recent Credit ( 5 ٪ ), and Available Credit ( 3 ٪ ).

Other credit risk scores:

There are other types of credit risk scores that are used for specific purposes or markets, such as business credit scores, insurance scores ، Alternative data scores etc. These scores can use different data sources and methods to assess the credit risk of the borrower or an institution.

How to improve your credit risk score

Improving your credit risk score can enable you to make better loans and investments, as well as save money on interest rates and fees. Here are some tips on how to improve your credit risk score:

 Pay your bills on time: Your payment date is the most important factor in your credit risk score ، So make sure you complete all your bills on time and every month. Avoid late payments, lost payments, collections, charge offices, bankruptcy, etc., as they can severely damage your credit risk score.

 Reduce your debt:

Your due amount or credit use is another important factor in your credit risk score ، So try to minimize your debt as much as possible. The purpose to keep your credit usage ratio by less than 30%, which means you have 30% of your available credit limit at any time٪ Should not be used more than. First pay your high interest loans, such as credit cards, personal loans, etc., and avoid taking new loans that you don't need.

Create your credit history:

The length of your credit history or the age of accounts is another critical factor in your credit risk score ، So try to create a long and stable credit history. Keep your oldest tabs open and active, as they show your experience and reliability as a borrower. Avoid opening many new accounts in a short period of time, as they reduce the age of your average account and indicate a high level of risk.

 Gain your credit:

Your credit mix or diversity of accounts is another important factor in your credit risk score ، So try to have a balanced mix of different types of credit; such as revolving accounts ( credit cards ), installment accounts (loans), and open accounts ( utility ). Having multiple accounts shows that you can handle a variety of loans responsibly.

 Check your credit reports:

Your credit reports are a source of information for your credit risk score ، So make sure they are accurate and up-to-date. You can get a free copy of your credit report from each of the three national credit bureaus every 12 months through the annual credit report.com. Take a closer look at your credit reports and contradict any errors or errors that you meet with the Credit Bureau.

To conclude

Your credit risk score is a powerful tool that can affect your financial opportunities and results. By understanding how your credit risk score is calculated and which factors affect it ، You can take charge of your credit health and improve your score over time. High credit risk scores can help you access better loans and investments, save on interest rates and fees and achieve your financial goals. So don't wait, start improving your credit risk score today!