Essay On Credit Scoring Bank

INTRODUCTION

Credit scoring is a technique which helps banks to make dicisions about theit client. By credit scoring bank will evaluate client and approve credit to applicants who apply to them or not. Banks or other lenders and smoe credit card companies use credit scores to evaluate the potential risk. So they use this models to determine who qualifies for loan, what is interest rate, and what is credit limits

Unlike traditional models of credit analysis, scoring models provides valuation based on numerical score who represent clients’ possibility to fulfil their obligation. This is mathematical model for the quantitative measurement of credit.

Using credit scoring models, bank can create a numerical snapshot of consumers risk profile.

If you make payments on time every month and don’t have negative public records , you will do well in this category. Late payments are a negative. The later the payment couses the more bad score

⦁ Credit Utilization

Credit utilization counts 30% of your FICO score. Don’t spend to much close to your credit limit, even if you payed your credit rate every month. FICO likes you to use 30% or less of the available credit.

⦁ Credit History

Credit history is , counting for 15%. The longer you own a credit card, the more it improves your score, provided that you pay it off every month.

⦁ Credit Use

Credit use is worth 10%. FICO wants to know how many forms of credit you have (credit cards, auto, mortgage, etc.) and how well you keep up with them. ⦁ New Credit New credit, 10% of the equation. It’s OK to apply for a credit card, but if you apply for several at the same time, it may be an indication you’re using one to pay off others and that is a negative. The same logic applies to asking for a car loan at the same time you ask for a home