What Is A Credit Score?
A credit score is a three-digit figure that ranges from 300 to 850 and is used to determine your credit risk, or how likely you are to make on-time payments on your debts.
Your payment history, the total amount of debt you owe, and the length of your credit history are all taken into account when calculating your credit score. Higher ratings indicate that you have previously exhibited responsible credit conduct, which may give prospective creditors and lenders greater confidence when assessing a credit request.
Credit Score Definition
Credit scores are made to help lenders make judgments. Banks and credit unions examine your borrowing history in order to determine how much of a danger you may be to fail on your loan. They may want to know if you have previously taken out loans and successfully repaid them or if you have recently stopped making payments on a number of debts.
Looking at a score gives lenders a quick and general indication of an applicant’s creditworthiness rather than taking 20 minutes to sift through each loan applicant’s credit report.
Borrowers may also benefit from knowing their credit scores. When a score provides the majority of the information they want, lenders can less utilize subjective judgment. Scores shouldn’t make distinctions based on your appearance or behavior.
Types of Credit Scores
FICO and VantageScore are the two primary scoring models that apply to the majority of credit score kinds. Insofar as a person with a strong FICO score is likely to also have a good VantageScore, the differences between VantageScore and FICO are quite small. Similar to the FICO scoring mechanism, a person with poor credit in the VantageScore model is likely to have poor credit.
1. FICO Model
Fair, Isaac, and Company first created the FICO credit score in 1989. (now called the Fair Isaac Corporation). Over 90% of reputable lenders utilize FICO credit scores for making lending decisions, according to MyFICO.
2. Vantage Score Model
The three major credit bureaus collaborated to develop the VantageScore model in 2006. In an effort to replace the FICO rating model, Equifax, Experian, and TransUnion developed VantageScore. VantageScore calculates your credit score using many of the same variables, but it weights them differently.
Benefits Of A Good Credit Score
With terrible credit, you can still get by, but it’s not always simple or inexpensive. Building up a decent credit score can enable you to save money and simplify your financial situation. Here are some excellent advantages of having a good credit score if you’re seeking for motivation to keep up your good credit.
- Low-interest rates on credit cards and loans
- Credit cards and loans are more likely to be approved
- More negotiating power
- Get approved for higher limits
- Easier approval for rental houses and apartments
- Better car insurance rates
- Bragging rights
Credit Score for Working Capital Loan
The applicant’s Credit Score will be reviewed for any Working Capital Loan Application. Working capital loan are a short-term funding advance used by businesses to manage their day-to-day operations. These operations include procurement of raw materials, payment of overhead expenses like electricity, rent, wages, and maintaining a cash flow in a business.
Banks consider a minimum credit score of 650 to provide working capital loans to businesses. Also, the businesses should have an yearly turnover of 1 lakh or above with bank stability of at least six months to get the working capital loan.
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Location: Lubbock, Texas, United States
Work:Owner/Broker @ HubCityLending
Education:University of Texas at the Permian Basin, Master of Business Administration, 1999 – 2001