Credit rating (or score) is a three-digit number from 0 to 999 (in some CRIs up to 850) which is calculated based on the data of your credit history report. It is taking into account many factors such as the time, number of loans, even small ones like 3000 dollar loans from https://moneyzap.com/small-loans/300-dollar-loan/, and their repayment discipline.
A credit score is one of the main factors used by lenders to assess your solvency and to decide whether to grant you a consumer, mortgage, loan, or credit card.
Your credit score can influence both the decision to issue a loan and the interest rate on it. A good credit score is usually considered to be 700 or higher. Lenders may have their own standards for evaluating borrowers. But they all use data from your credit history. It is extremely important to keep track of your credit score and history to get profitable loans.
A potential borrower should know about the state of credit history and the level of the credit score before applying for a loan. A borrower should know about the chances of getting a loan and expect a certain amount and percentage.
Good and Bad Credit Score
An individual credit score has a specific numerical value ranging from 1 to 1000. Conventionally, a rating scale in points is divided into several parts:
- 800-1000: good score – the likelihood of approval is very high;
- 600-800: average score – some companies may refuse;
- 300-600: you can get a loan for the short term but at a high-interest rate;
- 0-300: most likely they will refuse a loan, you can contact an MFO.
A value between 800 and 1000 is considered the best. Clients with such points are most willingly provided with loans and credits. With a positive assessment of the financial history, credit becomes available to a person in any bank or MFI. A borrower can independently decide where and on what terms to issue a loan. Also, personal offers of banks for loans with lower interest rates can be formed in the favor of the borrower.
At the same time, those who have an indicator of 300 and below are reluctant to issue loans. It is believed that such borrowers are inherently insolvent and financially unstable. A credit rating of 300 means that a person:
- has a large debt burden, delays, and fines;
- repeatedly took loans and with difficulty returned them;
- was a guarantor of problem loans;
- filed for bankruptcy of an individual;
- has an insufficient status of activity on loans (made loan payments for a long time but after a while stopped).
Before issuing a loan, a bank checks the financial history of an individual and only after that makes a conclusion about the possibility of lending it.
Risk Indicator and Other Components of an Individual’s Solvency
Credit rating points are awarded based on an analysis of the scoring indicator, risk indicators, and reliability. In this case, it is the risk indicator that is considered the main component. It has a value from 1 to 5:
- 1 is the lowest indicator that clients without education, living in small settlements, under the age of 21 have;
- 2 is a score given to clients living in disadvantaged regions under the age of 25 or over 65 (with secondary education);
- 3 is an indicator typical for borrowers with average unremarkable characteristics;
- 4 is a good indicator for people aged 30-50 years with higher education and married;
- 5 is the highest indicator value provided to trustworthy clients with good income.
The maximum credit rating score can only be obtained if the borrower has a risk indicator of 5.
How Do I Know My Personal Credit Score?
You can find out your personal credit score on the official websites of the credit bureaus. Experts warn that recently there have been many fraudulent resources offering services on behalf of the BCH, including credit ratings. Therefore, before receiving the service, you should make sure of the reliability of the credit bureau. A complete list of BCIs is available on the public services portal.
For example, you can get credit rating data on the NBCH website in the borrower’s personal account. To do this, you will need a confirmed registration on the portal of public services. This is a requirement to ensure the security of personal data. The very procedure for obtaining such registration takes no more than one minute. At the same time, the NBCH made access to its rating free for any borrower an unlimited number of times.
What Happens If a Credit Score is Zero?
The absence of credit history and personal credit score does not allow the bank to reliably assess the credit risk on an application for a mortgage of such a borrower. Therefore, choosing between a person with a high RCC or no RCC at all, the bank will choose the owner of the RCC. At the same time, there are opportunities for the bank to make a positive decision on such a borrower.
First of all, based on the analysis of the borrower’s income, the cost and quality (liquidity) of the collateral, the amount of the down payment, the history of the relationship of a particular borrower with this bank (possibly as a depositor or a salary client, etc.).
Nowadays there are very few citizens without a credit history. As a rule, these are the youngest borrowers. Based on banking practice, loans to such borrowers are usually approved for small amounts.
Earlier experts said that the hardest thing this year will be to get a mortgage. They classified risk categories of borrowers who make a small down payment. Self-employed and individual entrepreneurs will be at a disadvantage.
However, the greatest risk zone will be employees of companies engaged in small and medium-sized businesses, as well as in industries that are most affected by the pandemic (tourism, non-food retail, restaurants, sports). It will be rather difficult for these categories of borrowers to get the approval of banks. For banks, they will be the riskiest clients.
How Сan I Improve My Credit Score?
Your score can be improved by timely servicing of loans. If the personal credit score is low, then experts advise not to take out a mortgage right away. In addition, you should refrain from visiting many banks at once since they can send requests to credit bureaus with your consent. These requests will end up in your credit history. The best way is to track your RBI level online and place your bet on a single bank.