How Do Credit Scores Work

A credit score is a numerical expression used to quantify a person’s creditworthiness. It is based on a statistical examination of their credit reports. The main component of a credit score is credit report data, obtained from credit agencies. Credit scores are used by lenders, such as banks and credit card firms, to assess the risk involved in lending money to a consumer. 

Credit agencies like Equifax, Experian, and TransUnion compute credit ratings. These credit bureaus gather data about a person’s credit history, including payment patterns, balances owed, and other credit-related details. The credit score of a person is then determined using this information.

 In this short video, I explain credit ratings and discuss factors that affect them.

How FICO scores are calculated

There are several different methods that credit bureaus use to calculate credit scores. The most well-known method is the FICO score, which is used by the three major credit bureaus (Equifax, Experian, and TransUnion) to calculate credit scores.

The FICO score is calculated using the following factors:
 In this short video, I explain the FICO method of credit scoring.

Factors that raise the probability of default

When a borrower doesn’t fulfill their end of a loan or debt commitment, there is a credit default. Because each borrower’s financial condition is unique, there is no typical pattern of credit default.
The following video was prepared by me to depict the probability of default and how to avoid those factors that lead to default.

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