Credit Scoring

The final credit related concept we will look at in this financial glossary is called Credit Scoring.

Credit Scoring is the process of assessing how worthy of being lent money (credit) a particular entity: typically an individual, is.

It is used by a large number of lenders when working out both whether to extend credit to a person or entity, and then secondly how much to extend them.

Typically these are used by those who offer credit cards, mortgages and any other loan based product.

There are lots of things taken into account, but these include any previous history with credit you have had (e.g. did you repay all credit card bills on time) and of course how much you actually earn at the time of applying for credit and assets and so on are taken into account.

Of course anything like a bankruptcy or lots of problems making payments in the past is likely to affect your credit score adversely and may make it difficult to get credit as a result.

There are various risk scoring models out there that will assess your credit rating, or credit score.

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