Maximize Value Across the Entire Customer Lifecycle
Modern credit scores have only been around for a few decades, but credit reporting began as early as the 19th century.
Credit reporting was invented so commercial lenders could ‘score’ customers, assessing any potential risks.
The very first credit reporting agencies began as local merchant associations and would offer services to find and sell financial information to potential lenders. In the early 20th century, modern credit bureaus were formed, looking more closely like we know them today. From here, certain retailers started to offer credit to individuals. In 1912, these retailers decided to band together to “develop a standard method for collecting, sharing, and codifying information on retail debtors.”
Credit Score vs. Credit Report Before credit scores can be calculated, a credit report must be drawn up. A credit report is a detailed account of your financial transactions and financial status, including all of your personal details. A credit score is then calculated based on that information. Typically a three-digit number, this score quickly tells potential lenders how creditworthy you are.
There are five main factors that FICO (Fair, Issac and Company) uses to calculate your credit score, with different categories carrying different weights. These factors are:
Length of credit history/age of accounts (15%)
Recent credit activity and new accounts/new credit inquiries (10%).
Balances owed/credit usage (30%)
Payment history (35%)
Credit mix (10%)
United States Lenders send your credit report to one of the three major credit bureaus (Equifax, Experian, and TransUnion) and generate a score. Canada Canada is similar to the U.S. but doesn’t use Experian as a credit bureau. United Kingdom The U.K. has three major credit agencies – Equifax, Experian and Callcredit (Noddle), but each organization calculates credit scores differently. France There are no official credit reporting agencies in France; instead, credit scores are built on a bank-by-bank basis but aren’t transferable to other lending institutions. Netherlands The Netherlands has a single credit bureau, Krediet Registratie (BKR), to which unpaid debts are reported to. India India uses one official credit reporting agency, Credit Bureau Information India (CIBIL), which is a partner of TransUnion. Singapore Determined by Credit Bureau Singapore, credit scores in the country are a four digit number ranging from 1000 to 2000, which assign each consumer a probability of default. The higher the score, the lower the risk. Turkey Turkey's only credit bureau, Kredi Kayit Burosu (KKB), has 156 members, including banks, as well as factoring, insurance, leasing and consumer financing companies. It aims to share information and become the leading source of credit info in the country.
Germany The main credit agency, SCHUFA, is a private company that tracks accounts, unpaid debts, loans, and any delinquencies. Australia Australia has four main credit bureaus (Equifax, Dun and Bradstreet, Experian, and the Tasmanian Collection Service). Indonesia Indonesia’s traditional financial institutions perform their own credit-scoring analysis, but with over 90 million people who have no formal participation in financial services in the country, these credit scores leave out a huge portion of the population.
How Does Credit Scoring Affect Consumer Lending?
A credit score that is rated as ‘good’ or ‘excellent’ will save most people thousands of dollars throughout their lifetime.
If you have excellent credit, you get better rates and payment terms on everything from mortgages and auto loans, to credit cards and lines of credit.
Those with poor credit are seen as higher-risk borrowers and may either have less favorable lending terms or be unable to access credit at all.
How to Improve Your Credit Score
- Pay your bills on time, every time - Don't apply for too much credit
- Reduce your overall credit utilization - Sign up for credit monitoring services
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