Business, Legal & Accounting Glossary
A measure of credit risk calculated from a credit report using a standardized formula. Factors that can damage a credit score include late payments, absence of credit references, and unfavorable credit card use. Most of these factors are included on a credit report, which by law consumers are entitled to one free credit report from each of the three credit bureaus each year; this free report, however, does not include a consumer’s specific credit score, but can be obtained for a fee. Many people who choose to view their credit report do so in order to make sure the information is accurate, and make corrections if necessary to items that may be inaccurately hurting their credit score. Lenders may use a credit score to determine whether to provide a loan and what rate to charge. One of the most common types of credit score in the United States is the FICO score.
A credit score is a value computed by a credit reporting agency, or credit bureau, and based upon information about a person collected by the agency.
The credit score is sold by subscription to banks and other companies, who use the credit score when making credit decisions. Three major credit bureaus compute their own credit score for an individual. Typically, a lower credit score (i.e. below 600) will reduce the consumer’s eligibility for credit products. As a result, a lower credit score tends to increase the cost of credit. Under federal law, an individual may obtain (free upon request) the credit report from which their credit score is based if credit is denied. Credit reports can also be obtained for free once per year. Some of the more common factors that are used to determine a person’s credit score are payment punctuality, current debt to available credit limit ratio, and length of credit history.
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This glossary post was last updated: 22nd November, 2021 | 0 Views.