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In: Accounting

What goes into developing the credit score? What type of information is needed?

What goes into developing the credit score? What type of information is needed?

Solutions

Expert Solution

Credit score is based on an analysis of the person's credit files which gives information regarding the credidworthiness of the individual. Credit bureaus provides credit report information and credit files which are used to develop the credit score. Type of information required below:

1. Payment history - It is the most important factor in determining the credit score of an individual. History of on-time payments will give good credit score and any mis payments or untimely payments will reduce it. Late payment for a cetain period of time cana lso affect the score say late payment by 30 days or by 50 days will have different impact.

2. Credit level - The amount of credit that has already been taken by the individual say two individual with same earning but one has a car loan on going and other has no loan, will have different score.

3. Time period - Time since the new account opened, average age of accounts, recent accounts added also impacts credit score. The older the account, the better the score.

4. Credit mix - Mix of various credits such as student loan, credit cards, etc also have a minor impact on credit score.

5. Inquiries for new credit - Soft inquiries like checking own score and meeting pre requirements for the loan won't affect the credit score much. Hard inquiries such as when a crweditor checks your credit before lending money can have negative impact on score.


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