According to Investopedia, a credit score is a number between 300 and 850 that depicts a consumer’s creditworthiness. The higher the score, the better a borrower looks to potential lenders. A credit score is based on credit history: number of open accounts, total levels of debt, repayment history, and other factors. Lenders use credit scores to evaluate the probability that an individual will repay loans in a timely manner.
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How Does Credit Score Works?
Credit score plays a key role in a lender’s decision to offer credit. People with credit scores below 649 are generally considered to be subprime borrowers, that is borrowers who are considered to represent a higher risk to lenders.
Below is a chart that shows the various credit scores range and its grade.
|Credit score range
|750 to 850
|700 to 749
|650 to 699
|550 to 649
|300 to 549
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How is Credit Score Calculated?
Credit score is obtained from the information major credit agencies like Experian, Equifax, and TransUnion gather information. To compile a report, these credit-reporting agencies collect information from credit card companies, financial institutions, and lenders.
Credit scoring models examine credit report data and assign a numerical score to each factor. Some criteria will be highly influential, while others will only account for a small percentage of your overall score, depending on the model. As a result, even if they use the same credit report, different scoring models will produce different credit scores.
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Although credit score ranges differ based on the credit scoring model, scores of 650 and more are generally considered good.
Originally posted on April 28, 2022 @ 1:30 am