Article Categories
» Arts & Entertainment
» Automotive
» Business
» Careers & Jobs
» Education & Reference
» Finance
» Food & Drink
» Health & Fitness
» Home & Family
» Internet & Online Businesses
» Miscellaneous
» Self Improvement
» Shopping
» Society & News
» Sports & Recreation
» Technology
» Travel & Leisure
» Writing & Speaking

  Listed Article

  Category: Articles » Finance » Credit » Article

Credit Scoring: What is it and how does it affect me?

By Martin McAllister

In recent years, a credit score has become an invaluable tool in the decision-making process of granting or declining an application for finance. As responsible lenders, banks and financial institutions take into account your personal circumstances in order to try to establish the appropriate level of credit to give to an applicant, and to help them do this, most lenders will calculate a credit score to help assess an application.

Credit scoring is the technique used to assess the probability of an applicant for finance being able to meet their financial commitments and is subject to an array of determining factors. In most cases, information used by companies to provide a credit score will include information from the applicant's credit report, available from credit reference agencies such as Experian, along with other data such as how long the applicant has lived at their current address, their employment status, their earnings and outgoings and whether or not they are registered to vote.

Credit scoring works by allocating points for each piece of relevant information provided by the applicant and adds these points together to provide a score. If a score reaches or exceeds a certain level, then the lender is more likely to approve the application for finance. However, if the score fails to reach the required level, then the lender may decide to impose special terms (such as a higher APR), offer an alternative product or reject the application altogether.

Financial institutions are vastly experienced when it comes to assessing credit-risk, and in addition to an applicant's credit score and personal information, most companies have access to a huge amount of statistical and demographic data. By combining these resources, lenders can provide a fair assessment of an applicant's likelihood of being able to meet their financial obligations.

Once an application for finance has been approved, and repayments have begun, the lender can mark the agreement on the borrower's credit report. This information can show whether a finance agreement is in good standing, in arrears or if the account is in default. Entries into a credit report by lenders can affect a borrower's credit score, especially if they run into financial difficulties. Late payments and defaults can seriously damage a credit score making it extremely difficult to obtain credit in the future.

Many financial accounts that become defaulted are bought by debt collection agencies, such as Capquest Debt Recovery. These companies specialise in the collection of unpaid and delinquent debts. However, when a debt is bought by such companies and repayment has been established, a borrower's credit report doesn't show that repayments are being made. As such, this means that as far as lenders are concerned a debt remains unpaid, even if the borrower pays off the debt in full. However, there are discussions in place between financial companies and credit reference agencies that may allow debt collection agencies to be able to report on a debtor's credit file, so repayment histories can be shown and credit scores amended accordingly.

With the recent upsurge in identity fraud, it is becoming more and more common to find erroneous entries on a consumer's credit report, so it's a good idea to check your credit report from time to time, in order to make sure that information held on your report is accurate and showing all the relevant information. After all, any potential borrowing you might consider is influenced by the data on your credit report, whether it is legitimate or not and this will be reflected in any future credit-scoring that lenders might perform the next time you apply for finance.
About the Author
Capquest Debt Recovery and other similar companies specialise in the collection of unpaid and delinquent debts.
Martin McAllister is an online, freelance journalist. He lives in Scotland.

Article Source:
If you wish to add the above article to your website or newsletters then please include the "Article Source:" as shown above and make it hyperlinked.

  Some other articles by Martin McAllister
Debt Collection Agencies : Understanding a growth industry
Consumers in the UK collectively owe in excess of £1 trillion according to recent media reports. Much of this debt is due to borrowing on credit cards, bank loans and mortgages; but as consumer borrowing increases, ...

Valentine's Day offers everyone a chance to impress their loved ones with a special Valentine's Day gift
As January and February wear on, it's easy to slip into the winter doldrums. After all, with wind and rain lashing at your windows and those dark morning journeys to work, who wouldn't start to long for ...

This year, spring into your vacation with fewer crowds and lower costs
Once the winter holidays are over, many of us begin to look forward to summer. After all, the summer months afford the best weather, not to mention longer days ...

Romance and pasta: a match made in heaven?
With Valentine's Day just around the corner, hopeless romantics all over the world are racking their brains for something spectacular with which to surprise that special ...

Bad credit consumers can still find sources of financial assistance
In the last few years, consumer debt in Britain has been spiralling: from credit card debt to large mortgage burdens, it seems that UK spenders have become a nation ...

Buy property in Spain to start your retirement in style
Many UK residents will dream of one day retiring in sunny Spain. After all, thousands of people have done so in the past, and thousands more are planning to do so in the future. Considering ...

  Recent Articles
Debt Collection Agencies : Understanding a growth industry
by Martin McAllister

Five General Financial Habits That Can Raise Your Credit Score
by Dulce Azogue

Why Your Credit Score Is More Important Than You Realize
by Dulce Azogue

How To Start Fixing Your Credit Repair Ratings
by Tony Pescatore

Cheap Credit Card: Make It Possible…With Ease
by Josephine Wingfield

Violent Crime On Innocent Victims…Adds To The Victim's Woes…With Mountains Of Unpaid Medical Bills and Bad Credit
by Dale Rogers

How To Eliminate Credit Card Debt
by Tony Pescatore

Bad Credit Is No Longer A Taboo In Loan Market
by Turk Malloy

Poor Credit Does Not Debar You From Getting Secured Loan
by Aldrich Chappel

Credit Card Debt Management Gives Better Solution of Debts
by Ann Gibson

Bank On Your Future And Purchase The Car Of Your Dreams
by Christine Macguire

Business credit card: A new dimension for financing business
by Josephine Wingfield

Can't connect to database