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Credit Scoring and Its Impact - Essay Example
A credit score refers to a statistically based means of evaluating the expected repayment performance of a loan that can substantially decrease the time cost of reviewing applications, and human input.1 It is a three-digit number based on a borrower's bill-paying history and debt profile…
It has an important influence on the interest rate incorporated to the borrowed money. With the significance of credit score, knowing it enables an individual to question the accuracy of the score, and as a result, negotiates the best rates with lenders. A credit score is purchased separately and is not a part of a consumer credit report. One may purchase a credit score from a consumer credit reporting agency, who can charge him/her with a reasonable fee.4
Credit scores are used other than determining whether a person will default on a loan or make late payments. Low credit scores are used by usurers in order to identify individuals whom they believe are likely to make claims on their insurance policies. An accurate credit score can enable interest rates be charged on loans and can make a difference on the availability and cost of insurance.5
Mathematics models are used in calculating credit score, which analyzes the creditworthiness of a person. The amount and types of debt that a person owes are considered by the models. The person's repayment history will then be analyzed alongside thousands of other consumers in the credit store. ...