The Basics Of Credit Scoring Models And Credit Scorecards
Hi, I’m Licensed Nevada Credit Repair Specialist Damian Falcone. This is part one of the Credit Reporting video series.
In this series we’ll be talking about Credit-worthiness: The underlying components of a credit score commonly referred to as Credit Score cards; what you can do from the perspective of credit repair services to develop and strengthen these components; and some of the benefits that go along with credit-worthiness.
This is part 1 and we will focus on the basics of Credit scoring models and credit score cards. In Part 2 we will go into more detail on some of the major components. This is Get Repaired! Your source for Personal Credit Management information. As always, for even more information, go to www.falconcreditmanagement.com
Credit is a core element of financial success whether you are talking about business OR personally. It is not uncommon for consumer finances to follow and learn from the example set by fortune 500 companies or large corporations. If you don’t know much about credit scores or credit scoring models don’t feel bad. In the early 1980’s small and mid-sized banks were just beginning to implement database driven - credit scoring models in their financial management plans – that means in many ways they were operating along the lines of pawn shops.
Credit and Debt Management will likely become an obvious part of the consumer portfolio Similar to the attention given to personal asset management in the early 80’s by people like Charles Schwaab. Due to the decades of research performed in the corporate sector, resulting in credit scores for most consumers, we will make references at times relating Consumers and Corporations.
For our explanation of Credit scores we will use the 5 C’s. The 5 C’s are: Character or (desire to pay); Capacity (Ability to Pay); Capital (General Financial Condition); Collateral (Asset pledged as security); Conditions (Economic trends that may impact payment).
We use the 5 C’s because they are a more tangible representation of the components that are commonly referred to as Credit-Scorecards - which institutions from Pawn Shops to the worlds largest banks use to empirically evaluate Creditworthiness from who to attract as a potential client all the way to calculating how much they are likely to recover from Collection accounts.
You may have seen a list of the components used to calculate a Fico Credit Score:
- 35% Payment History
- 30% Amounts Owed
- 15% Length of Credit
- 10% New Credit
- 10% Type of Credit
FICO credit scores are becoming increasingly less important due to the availability and affordability of complex computer software which has motivated many smaller and medium –sized institutions to develop their own scoring models in house.
We will use these models to answer the questions:
- If I have a credit score of 730 why is the bank telling me I’m not creditworthy?
- What do I need to do in order for a bank to want to give me money?
- How can I look better on paper or Financially Responsible?
Scoring Models use calculations called algorithms to predict creditworthiness. These calculations are only as good as the information they are based on. So if there is incorrect information in your credit report it is likely to misrepresent you. Also, NO prediction is 100% accurate. This is why bank Vice Presidents among others know how to evaluate the components of credit scores…using the 5 C’s.
So Keep in mind if you feel like you’re out in the cold – Warming up is only a few good steps away.
Credit Repair Companies that are members of Las Vegas Credit Repair have obtained a Credit Services License from the Division of Mortgage Lending. Some of these companies are able to repair credit or provide Credit Report Repair through the use of Credit Repair Software which boosts efficiency and performance. The service providers are out there so do what you can to get the credit repair help you need.