Monday, August 13, 2007

credit rating with our

deliberately mis-titled this article. Credit ratings don't actually exist, it's a myth. Each lender scores you individually based on its own wish-list for a perfect customer. This is a step-by-step guide to understanding how the system works, and checking and improving your score.

What is credit scoring?
It's about profits not risk
What they know about you
What they don't know about you
Check your files for free
What to check on your file
Manage & improve your credit score
Discuss/Other Articles

DON'T Beware the Blacklist!

What is credit scoring?

Get a loan, mortgage, credit card, contract mobile phone or even monthly car insurance and lenders score you to predict your likely behaviour. Scoring systems are never published and differ lender to lender and product to product. This means just because one company rejects you, it doesn't automatically mean another will.

Credit scoring doesn't just dictate what products you'll receive. Most personal loan rates are ‘typical', as the actual amount you'll pay vastly varies with your credit score. With credit cards you may get an entirely different product to the one applied for, if your score's too low for the sexy product you wanted.

Clearing up two big myths

Credit ratings and credit blacklists don't exist. There is no universal credit rating; no one-off judgment of your creditworthiness, nor is there a blacklist. It mightn't feel like that though as, while each lender scores differently, the information is similar, so a bad risk for one lender is often a bad risk for others too.

Lenders aren't obliged to dole out credit. Applications are aggregated into millions, and banks prefer to deny a few good quality applicants rather than overspend on personalised vetting procedures or accepting large numbers of unprofitable customers.

Credit scoring's about profit not risk

This is so important, let me make it as clear as I can.

"Even good risks can be rejected simply because they won't make the bank money!"

Credit scoring is about profit not risk. Of course risk plays a part, as those unlikely to repay are an immediate threat to profits. Yet rejection may happen to even the most solvent if they're unlikely to act in a way that'll make profit for lenders. The sooner we understand banks are there to make money, not help us, the better we can play the system.

Some sophisticated scoring examples that should help:

Credit card companies reject you for always repaying cards in full. The most profitable credit card customer is perpetually in debt, never defaulting, always paying just the minimum (see Danger Minimum Repayments article). Thus if you pay off in full every month, or always shift debt to 0% cards, you may be rejected for further credit.

Your score mightn't be for to the product you apply for. It's all about weeding out the customers least suitable for their business e.g. current accounts are often used to draw in new customers to sell them other products. So apply for a current account and you may be scored on how likely it is to flog you a mortgage.

What they know about you

There are three prime sources of information used for scores.

The application form. Here lenders obtain the crucial details of your salary, family size, reason for the loan and whether you're a home owner. Ensure you fill the forms in carefully; one slight slip, such as “£2,000” salary rather than “£20,000”, can immediately kibosh any application.

Past dealings with the company. Companies use any previous dealings with you to help assess your behaviour, though complicated data protection rules can limit which separate units of a company can communicate to each other.

Credit reference agency files. The three credit reference agencies Equifax, Experian and Callcredit compile information, allowing them to send data on any UK individual to prospective lenders. All lenders use at least one agency when assessing your file. The agency data comes from:

Electoral roll information. This is publicly available and contains address and who lives with whom details.

Court Records. County Court Judgements (CCJs) and Bankruptcies indicate if you have a history of debt problems.

Financial Data. Banks, building societies and other financial organisations compile details of all your payments and transactions. Around 350 million records a month are tracked including ‘black data' which is details of any defaults, late payments or problems and ‘white data' which incorporates how you generally operate the account.

‘Black data’ has always been shared by financial companies but until last year ‘white data’ was only provided by some. Now all share the information, where they have customer consent, meaning that each now has access to all data about you from other organisations.

Sunday, July 8, 2007

who credit rating description

A credit rating assesses the credit worthiness of an individual, corporation, or even a country. Credit ratings are calculated from financial history and current assets and liabilities. Typically, a credit rating tells a lender or investor the probability of the subject being able to pay back a loan. However, in recent years, credit ratings have also been used to adjust insurance premiums, determine employment eligibility, and establish the amount of a utility or leasing deposit.
A poor credit rating indicates a high risk of defaulting on a loan, and thus leads to high interest rates.
1 Personal credit ratings
2 Corporate credit ratings
3 Sovereign credit ratings
4 Short term rating
5 Credit rating agencies
6 References
7 See also

[edit] Personal credit ratings
In countries such as the United States, an individual's Credit history is compiled and maintained by companies called credit bureaus. In the United States, credit worthiness is usually determined through a statistical analysis of the available credit data. A common form of this analysis is a 3-digit credit score provided by independent financial service companies such as the FICO credit score. (The term, a registered trademark, comes from Fair Isaac Corporation, which pioneered the credit rating concept in the late 1950s.) or by the bureaus themselves.
An individual's credit score, along with his or her credit report, affects his or her ability to borrow money through financial institutions such as banks.
In Canada, the most common ratings are the North American Standard Account Ratings, also known as the "R" ratings, which have a range between R0 and R9. R0 refers to a new account; R1 refers to on-time payments; R9 refers to bad-debt.
The factors which may influence your credit rating are:[1]
ability to pay a loan
amount of credit used
saving patterns
spending patterns

[edit] Corporate credit ratings
Main article: Bond credit rating
The credit rating of a corporation is a financial indicator to potential investors of debt securities such as bonds. These are assigned by credit rating agencies such as Standard & Poor's or Fitch Ratings and have letter designations such as AAA, B, CC.

[edit] Sovereign credit ratings
A ' is the credit rating of a sovereign entity, i.e. a country. The sovereign credit rating indicates the risk level of the investing environment of a country and is used by investors looking to invest abroad.

[edit] Short term rating
A short term rating is a probability factor of an individual going into default within a year. This is in contrast to long-term rating which is evaluated over a long timeframe.

[edit] Credit rating agencies
Main article: Credit rating agency
Credit scores for individuals are assigned by credit bureaus (US; UK: credit reference agencies). Credit ratings for corporations and sovereign debt are assigned by credit rating agencies.
In the United States, the main credit bureaus are Experian, Equifax, and TransUnion.
A relatively new (but important) credit bureau in the US is Innovis.
In the United Kingdom, the main credit reference agencies for individuals are Experian, Equifax, and Callcredit.
In Canada, the main credit bureaus for individuals are Equifax, TransUnion and Northern Credit Bureaus/ Experian.[2]
The largest credit rating agencies (which tend to operate worldwide) are Moody's, Standard and Poor's and Fitch Ratings.

[edit] References
^ "Consumer information center FAQ", Equifax
^ "Student workbook", CIBC p. 14
de Servigny, Arnaud and Olivier Renault (2004). The Standard & Poor's Guide to Measuring and Managing Credit Risk. McGraw-Hill. ISBN13 978-0071417556.

[edit] See also
Credit risk
Default (finance)
Credit history
Credit score
Risk-based pricing
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